Fender guitar maker sets stage for IPO

Forget about Facebook. The manufacturer of the iconic Stratocaster is making noise with plans to go public.

By InvestorPlace Mar 8, 2012 11:47AM
Image: Fender guitar (© Corbis)By Tom Taulli

Leo Fender, the founder of the Fender Musical Instruments Corp., brought to life the Telecaster, the first commercially successful solid-body electric guitar. It would help make Fender an iconic brand for the rock 'n' roll movement and bring the guitar brand into the pop culture mainstream.


Now Fender is aiming for the U.S. market mainstream via a stock IPO.


The company just announced plans to go public, with JPMorgan (JPM) as the lead underwriter and "FNDR" as the proposed ticker. Fender plans to list on the Nasdaq.

Leo Fender started his company in Fullerton, Calif., in 1946 and created the Telecaster a few years later. But in the mid-1960s, Fender sold his company to Columbia Broadcasting System. Then in 1985, Fender was spun off to a group of managers.


Last year, Fender held the No. 1 position in terms of revenue for electric, acoustic and bass guitars in the U.S. The company has a wide assortment of brands other than Fender, such as Squier, Jackson, Guild, Ovation and Latin Percussion. It also has license rights to Gretsch, EVH (Eddie Van Halen) and Takamine. Not to mention its guitars have been used by some of the world’s greatest artists, including Jimi Hendrix, Eric Clapton, Jeff Beck and David Gilmour.


Still, Fender continues to focus investments on innovative product development. For example, in January the company launched its Fender Select line, which is a premium, hand-crafted production guitar. The Select line should help boost margins and lead to a spike in upgrades.


And Fender is more than just about guitars. In 2007, the company purchased Kaman Music Corp., which is one of the largest independent distributors of musical instrument accessories.


The result is that Fender is now a sizable business. In 2011, revenue came to about $700 million, up from $618 a year earlier, and adjusted EBITDA was around $53 million.

A key growth driver has been international markets, which account for 46.7% of net sales.


Fender believes it still has plenty of potential to enter more countries. It's also getting more aggressive with licensing its brands. In fact, the company might get traction beyond music, such as for apparel, consumer electronics, mobile and bags. Fender has already put together co-branding deals with Apple (AAPL) and Hard Rock Cafe International.


So in light of its global brands -- as well as growth opportunities -- Fender should continue to be a top-notch player in the music business. Expect investors to line up for the IPO when it hits the market within a couple of months.


For more on high-profile IPOs, read about how a Dutch auction may work for Facebook's IPO or how Pandora's public stock offering was a debacle.


Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

 

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10Comments
Mar 8, 2012 1:27PM
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In the world of acoustic guitars, there are already some well-established giants, including CF Martin, Taylor, Guild and of course Gibson.

 

The problem is how cheaply an acoustic can be built in the developing world.  Every time a population gets really good, the craftsmen form a guild or union, and want to be paid better and get some benefits, and the global corporation then moves operations to some place with cheaper labor.

 

It was Japan, then Korea, then Taiwan and now Indonesia.  With every cost-cutting by the global companies, the quality goes down a notch and the materials are a bit cheaper.  The guitars being passed off as "Mahogany" and "Rosewood" barely qualify to use those names for their woods.

 

The real shame is, all these countries could make excellent guitars, if the global corporation were not squeezing the craftsmen so badly.   Want a good guitar?  Buy one made before 1990 and made in the United States.  And find your local luthier and let him set it up for you.

Mar 8, 2012 1:28PM
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When you've got to report to shareholders it becomes more about the bottom line and profits than musical instruments - just look at what happened to Gibson in the 70s.  Quality is sure to take a hit.  I don't see this as a good thing for musicians.
Mar 8, 2012 12:54PM
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If Fender leads in acoustic guitar sales, it must be because of Guild, Ovation, and Takamine. Fender-branded acoustic guitars have never been much good in terms of build quality or sound; I can't remember the last time I saw a pro use one.   
Mar 8, 2012 1:40PM
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Fender makes some of the best basses in the world, and always will. Long live P & J.
Mar 8, 2012 3:31PM
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I agree with Altoona.  This will only push Fender to make cheaper (cost) guitars and sell them at a higher price.  Quality and customer service will suffer in order to drive volume and revenue.  I've owned 7 Strats in my lifetime - if you're a musician in Austin, TX it's practically the law to have one.  So, I fear for the future of this company and the product they put on the shelves.

 

If you have an American Strat, hold onto it.  The value might skyrocket in a few years once this company starts producing lower grade equipment.  I hope I'm wrong.

Mar 8, 2012 1:55PM
Mar 8, 2012 4:43PM
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Its no longer about quality, hasnt been for years,  its about profits, Fender and Gibson both churn out products like so much cheap sausage.  In the 70s both co's built crap, enter the Japanese with less expensive but well made guitars, remember how they were sued to keep em out of the country, copy right infringement! Detriot  wanted tarrifs on Japanese cars to even the playing field as they were building better cars than Detriot!  To this day you cant find a guitar made in Japan due to this!  The lower end fender amps are made in Mex, cheap parts cheap labor, the higher priced ones are made here but still using cheap parts and are sold at a premium price! There is no shortage of people lining up believing these are top notch products, of course they are sold a dream, mostly kids emulating their heroes, almost like selling crack. Its just a name and brand recognition. Leo Fenders last company was G&L guitars, the US made versions are almost custom shop quality, without the hyper inflated price. So with an IPO will be share holders and even more pressure for profits,  remember this before plunking down a  ton of money for their products, take a good look at other guitar and amp makers, there are many that build a better product!
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I plan to buy Fender products when I can get a chance to get after some money to do so. Another Stratocaster and a new amplifier sound good to me.
Mar 8, 2012 11:41PM
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The post below was writen by someone who has no clue what they are talking about.

Mar 9, 2012 12:18AM
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Actually 90% of these comments are factually wrong. I see the third comment below this is clearly wrong as well. Gibson and fender still make guitars in japan. Ever hear of an orville? come on, this is silly. I hope peaple do not believe these mis informed posts. Nothing will happen to the usa strats other than being improved by them going public.

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