Fender going public

[AzWhoFan]

soon to be listed on NASDAQ

http://money.cnn.com/2012/03/08/news/co ... ?iid=HP_LN

[pjmuck]

Good news for those of us who own vintage Fenders.

I suggest we buy up as many MIA Fenders now before they move all manufacture to Shinola.

[Frenchy-Lefty]

Hopefully it will be better run than Gibson, one of most poorly managed public company in America. On paper though, it may not be such a bad investment. It is truely an iconic American brand with a market somewhat shelted from the economic cycles and technological changes. But PJ is correct, if they try to cut corners and sell out to the excess of corporate greed, it's over. I might take the gamble and buy some stocks myself.

[velalv]

Honestly, if I were an investor, I would be looking carefully at the fact that they are looking to use half of the proceeds to retire past debt, if I recall correctly. That alone would make me anxious. I am not sure what the extra money would be used for, given that their business model does not rely on pushing the envelope forward, but rather creating new designs on iconic basses? They already have scale, a lot of infrastructure, etc.

Ok, I think I am going to grab a copy of the prospectus and take a look through it. This now has me curious.

[Agent00Soul]

I am always amused when I look through the Fender listings on Musician's Friend. It's always "How many different permutations can we make from our 1950-70 models?"

[mcarp555]

The odd thing is that Fender is always trying new designs, but nobody's interested. They just want Strats and Teles and P or J-basses. It's only now that Mustangs and Jags (and Jag-Stangs!) are getting any notice. Who ever bought a Performer or a Katana, or a Custom?

I always thought the Starcaster was a nice design.

[Agent00Soul]

The odd thing is that Fender is always trying new designs, but nobody's interested. They just want Strats and Teles and P or J-basses. It's only now that Mustangs and Jags (and Jag-Stangs!) are getting any notice. Who ever bought a Performer or a Katana, or a Custom?

I always thought the Starcaster was a nice design.

Me too, although apparently they were mad trebly. I've never heard one live.

Rickenbacker also had this problem it seems. I seem to remember an interview with John Hall about 10 years back and he was saying that he had always tried to make new models but all anyone bought were the classics so he gave up.

[AzWhoFan]

Let's not forget that Fender owns a butt-load of other companies, who are subject to a much more positive view towards innovation in design and esthetics.

[velalv]

I have to admit I struggle quite a bit with the issue of vintage vs modern. I think that my American Jazz Deluxe is a great vintage meets modern bass, and I loveit, but I would like to keep something to complement it. Might put a separate thread on it. Anyhow, the sales don't lie in terms of what people want. The fantastic four are the Stingray, the Rick, the J, and the P. I don't think anyone gets laughed out if they show up with any of those basses.

Also, while people who obsess over gear and GAS (like myself) follow every trend there is a whole world of people who don't, and simply want something tried and true. Just take a look at Guitar Center.

[Retag]

Me too, although apparently they were mad trebly. I've never heard one live.

The guitar player for the Killers uses a Starcaster almost exclusively, so their recordings should give you an idea on how they sound.

[velalv]

So, I was just looking the Fender's IPO document (SEC Form S-1) with the SEC for fun and out of curiosity to what light it would shed, and it was interesting, to say the least. I read these things pretty regularly for my day job, and saw a few notable things. Sorry if I am repeating anything said elsewhere, just wanted to add to the conversation to this board.

First, they want to shift production of high end goods away from the US and to their Mexico facility.

Second, they list a major risk factor as the possible unionization of their Corona, CA plant. Most companies don't list that as a potential risk factor in these forms.

Third, their supply chain is thin for hardware is thin. They had problems with paint supplies going out of business, as well as sourcing tubes and their amp ware, as well as rosewood, because so much of their business is based on "historical" manufacturing practices. They also cited problems with Asian OEM's going out of business, but I don't see that as anything overly unusual.

Fourth, the extent to which they rely on Guitar Center is well known, but relying on them for 15% of sales is a lot, especially given it's credit problems!

Fifth, sboth Fender and Guitar Center are owned by private equity outfits, and both seem to have saddled their respective companies with lots of debt. Not sure their extra debt was worh the benefit. They plan to use the proceeds to pay for their debt, most likely to the PE firm, but what's scares me is that I don't see any concrete plans for them to use the extra income to do anything other than running normal operations.

Sixth, they plunk a lot of money into R&D. Makes me wonder why we don't see more new guitars to supplement their iconics.

Anyways, I will probably keep going through the document. If anyone else is interested in what i turn up, let me knw, and I will post my thoughts on this. Hope this helps.

[AzWhoFan]

velalv, thise are great nuggets you uncovered. I for one would lijke to hear what other details you might uncover.

[velalv]

Cool, I'll keep them coming as I get through the financials.

[pjmuck]

First, they want to shift production of high end goods away from the US and to their Mexico facility.

Think we'll see a significant reduction in retail prices as a result? Doubtful. Cut labor costs, cheapen the product/materials, and charge the same (if not) more.

[mcarp555]

If they plan to increase capital by going public mainly to service their debt, then lowering prices would probably be suicidal. It would only give ammunition to any critics who might suggest that lowering the MSRP would equate to a lowering of quality by moving to Mexico.

If anything, it would probably drive up the prices for USA-made gear, both new and used.

[Retag]

Sixth, they plunk a lot of money into R&D. Makes me wonder why we don't see more new guitars to supplement their iconics.

Their research department consists of researching how many ways can they dress up a Strat and sell it to the public.

[velalv]

Anyone know what happened in 2007 at Fender? Their numbers from that year looked awful, and then they started doing WAY better. Big turnaround. I know some of the losses have to do with economic crisis, but the numbers should have been gradually rising. Fender shareholders (of the private company) took a $55 mil loss in 2007, but then it smoothed to $8million the next year, and then a $6million profit to shareholders later.

We all talked about how the QC at Fender improved post 2008. The numbers bear out better results, somewhat, post 2008.

Any theories on what happened previously?

[AzWhoFan]

that was the year of the 30% price hike on most everything "Fender". They rolled back prices somewhat in '08.

[velalv]

Interestingly enough, the prices of that era are now the subject of litigation. Apparently, Fender got sued for engaging in anti-competitive conduct that resulted in higher amplifier and guitar prices from 2004-2009. The suit was against Guitar Center and Fender (Giambusso v. NAMMM, Guitar Center, and is not consolidated as In Re Musical Instruments and Equipment Antitrust Litigation. Should be interesting to see how that goes.

[velalv]

More tidbits from the S-1 that Fender filed (please let me know if I need to translate any of this into English:

1) Fender's music instrument business is quite profitable (about 25% margin). That is pretty good, not spectacular, but very, very solid. The loss of money and debt related issues they are encountering are coming as a result of acquiring Kaman Music to add distribution capacities. It seems like they are not making anywhere near as much in licensing and distriubtion income as they thought they would.

2) The debt that they took on was to purchase Kaman music. That appears to be a noose. Essentially, they took on more debt than they could reasonably pay back, and took on some very restrictive debt convenants where they pretty much mortgaged the company and pledged all of their assets, and look like there is a risk of default. That is not good. I don't know anything about Kaman music.

3) Their executive compensation is actually quite modest for a publicly traded company, except for Larry Thomas's paycheck. He is doing quite, quite well for himself, and has a very good package. Larry Thomas was the former CEO of Guitar Center. This may explain why Fender is so close to Guitar Center.

4) 80% of their company is owned by Private Equity/buyout firms, and people associated with them. I imagine that these folks are going to really benefit from this transaction