This morning, I ran across this article stating that Fender has filed with the SEC for a public offering of $200 Million. $100 Million of that will go to pay down debt; currently Fender has a debt load of $246 Million. The other $100 Million will be used to grow revenue.
Personally, I have mixed feelings about this. For one, I’ve seen and been involved with companies that have gone public. There’s nothing that kills innovation and creativity more than going public and having to answer to Wall Street and financial analysts’ expectations. Granted, those companies have been tech startups, and Fender is far from being a technology company. So perhaps this infusion of cash will help them. But the following excerpt kind of bugs me (not completely mind you, but it’s a bit of a concern):
With sales in 85 countries, Fender said revenue could get a boost from growing interest in guitar-based music from emerging markets like China, India and Indonesia. But it warned that increasing popularity of other types of music, such as rap or house, could hurt demand for its guitars.
Let’s face it: Asia is the land of cheap ripoffs and unabashed product forgery, so I’m a bit concerned about the expansion into the Asian market. However, that said, Fender has a great brand, and it can get a lot of mileage trading on that brand.
Don’t get me wrong; I really wish Fender well. I’ve got and have had several Fender products over the years, so yeah, I’m a believer. I only hope they’re not over-reaching and hope that they can maintain their quality by being traded publicly.
Guitar Gear 
I guess I don’t know what to think. Fender’s business model, like Gibson is to have their lower priced guitars made in Asia for the beginner market. When a kid decides he wants to play guitar, his or her parents don’t mind investing 200 bucks or less for a Squier or Epihone and these guitars are well made and most importantly easy to play. This way the kid doesn’t get frustrated with a lousy instrument and give up – thereby losing a customer. Instead more kids acutally learn to play and become life long customers. Fender and Gibson both make their top line guitars here, because every musician wants an American made Fender of Gibson at some point – this becomes a goal of every kid who starts on a Squier or Epiphone. In the old days, the cheap guitars were often unplayable and kids quit. This is why I dont’ believe this offering will mean more outsourcing. Fender also learned in the 80’s that outsourcing all of their instruments was the kiss of death, because all the musicians refused to buy them if they couldn’t get the real American deal. As outlandish and wild and crazy as musicians can be, they are extremely conservative when it comes to where their favorite guitars are made, and that is unlikely to change.
However, being a slave to Wall Street is another matter and for that I do share your concern. But I guess they need the money. At least until the market gets better and people start buying guitars more ofteh again.
In the past, the criticism of Asian guitars was more justified than it seems to be right now. Some of the ones currently coming out of the Orient are as good or better than their American counterparts. But I also have mixed feelings about Fender going public. That rarely yields an increase in quality.
As a publicly traded company Fender will have to answer to a Board of Directors and it’s shareholders. I have a full time job working nights but I am a online stock trader by day. Playing guitar is my hobby and passion. I know how investors and traders think and it’s all about the bottom line, quarterly earning reports and profit margins. We all know what happened when Fender was owned by CBS. A similar situation happened with Harley Davidson motorcycles. They were sold to AMF ( the bowling & sports equipment co. ) and HD went down the tubes. The Davidson family and employees bought the company back from AMF and turned things around. HD then decided to go public ( ticker : HOG ). Today, even though the motorcycles are assembled in Milwaukee, many of the parts are made overseas. Almost all of their accessories and motorclothes are made overseas as well. So much for the great American icon. But………the stock has done well. If Fender goes public it will do whatever it takes to make its shareholders happy and I’ll bet most of them won’t be guitar players.
And George, that is precisely my point. Once companies focus on the bottom line, innovation and creativity go out the window; or worse, the drive to get new product out quickly to maintain the bottom line seriously affects product quality because products are rushed to market. Hopefully Fender can continue to maintain that quality.
Ed, to your point, Squires are indeed made in China and the quality of those instruments is top-notch. I’m amazed at the quality the Chinese guitar manufacturers have been able to achieve, so that’s actually a great thing for Fender as they can maintain that quality.
If Fender starts outsourcing their really good guitars, and nothing is made here anymore, it’s all over. Young and old, people who love electric guitars want the option to get an American Made guitar, even if they have to save up for it for a while. The Asian guitars serve their purpose and are well made enough and cheap enough that a kid will have minimum trouble with the mechanics of learning to play the guitar, and not quit, providing more and more life long customers, but everyone eventuall wants the great American Fender.
As far as stockholders and bottom lines, well that depends on Fender management and how they react to market forces. After the stocks are sold Fender has the money – the can liquidate their bills and the only downside is if they do not pay attention to making shareholders happy, the stock will go down in price and likely will not be able to effectively sell any more. That would be the worst case.
When the economy recovers, guitar sales will once again go way up, because every kid wants to be a guitar hero.
It is possible that going public is a tactic to buy some time until the economy gets better. JMHO
I couldn’t imagine Fender being in debt, never mind for $246 million. Is this something that started with the recent recession or has it happened over a longer period.
They did it through various acquisitions over the years such as Kramer and Adamas (Ovation). So it’s not too surprising that they’d seek cash on the public market. But hopefully that $100 Million that they’re going to use for working capital will bring them a nice return.