Why Fender Canceled Their IPO

After failing to impress investors due to debt and poor market outlook, Fender cancels their anticipated initial public offering.

Fender IPO Canceled

The decision to withdraw their IPO was announced by Fender CEO Larry Thomas, he was quoted saying: "Current market conditions and concerns about economic conditions in Europe do not support completing an initial public offering at what we believe to be an appropriate valuation at this time." Larry Thomas was the man behind the successful strategy of taking Guitar Center public and later selling it to Bain Capital in 2007.

Although Fender has had positive growth in their sales in the past few years, they are still down when compared to their performance in 2008 when they had sales of $712 million with only $700 million last year.

Europe accounts for about a quarter of of Fender's net sales, but with economic uncertainty looming, demand for Strats and Teles are sure to go down negatively affecting Fender's sales. According to Jeffrey Bronchick, chief investment officer at Cove Street Capital, another factor that affects Fender products is the rise of electronic music. Instead of traditional bands, younger musicians can now opt to make electronic music using their computers or tablets.

Aside from factors that Larry Thomas cited, analysts have been pointing to other issues, like Weston Presidio's perceived goal of bailing or cashing out. They are the biggest current share holder of Fender, and at the canceled IPO, they planned to sell a third of their shares. Some are thinking that they are simply planning to abandon ship and eventually sell everything. Weston Presidio is a private equity firm who were also part owners of Guitar Center.

Another issue that may have put-off investor interest is Fender's large debt. After getting out of CBS control, Fender started acquiring their competition, including big guitar brands like Guild, Gretsch, Ovation, Jackson and Takamine. Some of the acquisitions were deemed questionable, driving Fender's debt to its current amount of $257 million. To make matters worse, Guitar Center which is Fender's biggest customer, owes Fender $11 million.

Fender IPO Canceled

Musicians and Fender fans world over have voiced out their opinion on various forums, and the common theme is that they don't like the idea of Fender going public.

Many fear that public ownership would prioritize profit over quality as they focus on the bottom line and meeting quarterly market expectations, possibly tarnishing Fender's iconic status in the process.

The planned "FNDR" IPO was supposed to raise up to 200 million dollars that Fender would use for expansion and for paying off debt. Now that the plan is shelved, Fender is back to the drawing board and probably rethinking their strategy. Instead of over expanding and buying their competition, maybe they should go back to making quality instruments that people will buy. Some are saying that this is just an unavoidable delay, and that Fender will definitely go public in the future.

We'll have to sit back and see if a "Road Worn" version of the IPO makes a reappearance at a later date.

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Who would have thought.

"Many fear that public ownership would prioritize profit over quality as they focus on the bottom line and meeting quarterly market expectations, possibly tarnishing Fender's iconic status in the process. "

Its too late. I believe part of the reason fender has posted so-so sales that last few years has alot more to do with their quality and part choices than anything else. That and their focus on new age electronics.

New fenders sound cheap, have cheap controls, tuners and bridges. Im not just talking about the imports; I recently sat down at a guitar center and played through 10-15 new (as in last 5 years) strats and teles both American and Mexican. I was unimpressed, especially for the prices involved. A few mexi strats there out played American custom shops, but I could still put together a better guitar from a place like 'guitarfetish.com.'

I also don't need a synth or modeling system in my guitar, especially when its going to remove all the nuances of the piece of wood I'm actually playing. This is a gimmick for the 40-60 year olds who want to buy a thousand dollar toy, not a serious musician. Best option would be to reinvest the money spent on these horrible sounding projects on real instruments and win some customers back. But, Fender it seams, is intent to drag their name and traditions thru the mud in the name of modern improvements, ala gibson with their robot guitars.

The Glory Days of the Guitar

@Short rant: This 60-year old agrees with your statements and views 100%. So I'll pardon your blatant generalization about 40-60 years olds wanting thousand dollar toys :)
Here's hoping Fender start to pay attention to those of us who just want their best effort on their best piece of wood using their best components and features we have been used to since 1954. Not fancy electronics or fancy gadgets - just the guitar.
But sadly I know the world is changing - and along with it, people's motives and business strategies - so perhaps the glory days of the guitar as the wonderful instrument it is, are over?
I hope not.

Why Fender Cancelled Their IPO - comments

Interesting news. It continues to emphasize how most major companies (and artists) have "one-way" websites (where they tell YOU about themselves, but there's no way for you to easily or directly contact THEM).

Fender CEO Larry Thomas is just one of those examples. It is maddening to be "cut off at the knees" by petty tyrant guard dogs within Fender. These people prevent others from offering a great solution to Fender's current problem. We have one such solution if anyone at Fender is truly listening. We have products that will let them create instruments with a jaw-dropping 76 pure analog pickup tones.

At AweSome Musical Instruments, we have been silently inventing the future for all electric guitar and bass players. We now have 50+ upgrades that use our growing family of High Performance patented Pickup Switch Upgrade(tm) core products. Although many of our upgrade products are designed for Fender's instruments, we also have switch upgrade products that can be used in ALL electric guitar and bass instruments that use coil-wound magnetic pickups. Our RoHS certified products don't use batteries or electronics so they are planet friendly.

Our Pickup Switch Upgrade(tm) products are intended to be the 21st century pickup switch standard to replace those obsolete 100-year-old 3-way and 5-way switches. Unlike our switch products, these antique switches cannot produce the range of tones customers are now expecting - and demanding. You can see it with the newer models from the smarter manufacturers. Mini toggle switches are popping up like mushrooms after a spring rain. The problem is that there is no Standard for use that makes it easy for customers to go from one manufacturer to another.

The recent release of our T4-Switch product gives 76 pure analog pickup tones to all instruments that have four pickup coils. Other switch products provide varying amounts of pickup tones, depending on the number of pickup coils resident.

Simply put: by licensing our products, Fender can introduce "Hyper-Instruments" that give you absolutely ALL combinations of pickup coils being off/on, in regular/reverse phase, in parallel/series.

Imagine the buzz in the session musician community when they can get one instrument that will produce 76 distinctive pickup tones. It lightens their load, doesn't waste everyone's time while the session player is tuning up a dozen or more instruments, and they can give the producer the exact tone shade needed for the composition. Guess who is going to be called First by the producer for the next collaboration project?

Stand up musicians will not use all the tones - it's just not practical. What they will do is write down what each unique tone sounds like to them. Having a "map" of 76 available pickup tones, they can easily select two or three tones to use. One of the tones will be used to blend in with the group, the other one or two tones can be their "Signature Sound."

Everyone reading this knows that the musical industry has become fiercely competitive in the last decade. There are more players chasing fewer gigs, less recording contracts and all at constantly lowering pay rates. To get ahead, you need something that gives you an edge in the market.

How can you stand out and be noticed if you have the exact same three or five pickup tones that are also used by millions of wannabes? You need to be different or you won't survive the journey.

Back to Fender's problem. Most of the older rockers are maxed out with an average of 5.7 instruments. Unless they want a lot of grief from their spouse, there is no compelling reason to buy another instrument.

Further, the recent NAMM show in Nashville is clear evidence that there are more and more guitar/bass manufacturers chasing fewer customers. The reduced customer base can be attributed to public school cuts in music programs, the rise of hip-hop/rap that uses soulless boxes that thump (and eliminate the need to purchase and actually learn how to play musical instruments).

And the HUGE problem that none of the manufactures see is coming from the Chinese BORG (if you're a trekkie, you know exactly what I mean.) These are people who don't play by the rules. There are hundreds and hundreds and hundreds (I'm not kidding) of small electric guitar and bass factories in China. All of them are making clone copies of Fender, Gibson, Gretsch, PRS, and are now starting to dip down to the middle tier manufacturers (e.g., Reverend, Epiphone, Taylor, Washburn, Carvin, Eko, and a host of others.)

Let me be clear about this. It is the sole purpose of the Chinese BORG (their government in concert with the manufacturers in China) to FLOOD this country with cheap imports and drive everyone else out of business. Their objective is to become the sole source of supply for musical instruments. It is happening in other industries; solar panels, golf clubs, automobile tires, bicycles, glass items, textiles, surfboards, bath towels, clothing, carpets and rugs, pet food, toothpaste, and way too much to list here. Just google "industries destroyed by cheap chinese imports" to get an eyeful.

The sad thing is that the U.S. government is not doing anything to protect American manufacturers from this unfair playing field. I love my country but I also despise the current scato-head administration that is ruining our future and the future of our children and grandchildren.

Even more insidious is the fact that all of these Chinese factories are listing their products on consortium websites like alibaba.com, made-in-china.com and about a dozen other sites. They are selling their instruments for 50 percent to up to 90 percent less that the cost here in the U.S. And they are doing a complete end run around U.S. Customs problems by offering "free" shipping using the DHL or the Chinese equivalent. This gives them the "stealth" way to destroy our manufacturers.

There is industry turmoil everywhere you look. Just eighteen months ago, Best Buy reallocated the floor space previously used by music CDs to offer musical instruments. Today, they have realized that people were using them to "try" instruments - but buy them online (mostly from the Chinese). Because this is not a sustainable business model, Best Buy is shuttering 50 stores to reduce the losses.

That trend of using another business to "try, but buy elsewhere" is also going to collapse the independent Music Dealers. Without being a dealer of our products, they also run the risk of becoming a casualty of this trade war.

The Bottom Line: A decade ago, most of the big manufacturers broke their legs to go to China and shave "chump change" off their cost. What they did was provide uncontrolled access to quality processes. So ten years later, these manufacturers cannot compete on price (the Chinese still use slave labor), they can no longer compete on quality (a decade ago, Chinese instruments were crap - today they are of impressive quality). So what's left for the American manufacturers?

The only salvation for Fender (and other manufacturers) is to license our Pickup Switch Upgrade(tm) products to offer customers MORE PICKUP TONES. There is no other solution if you want to continue being a player.

In about 18 months, the companies that don't have a licensing agreement with us will be at a point where their overhead will stay the same while their sales drop off to zero. This is an oblique way of saying you're out of business.

Apology for being long-winded, but this needs to be clearly and forcefully stated. Hopefully I have done so. Our future depends on others being aware of the war that is being waged on us.

Question: What do you call a country that exports raw materials and imports finished goods?

Answer: A colony.

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