NEW YORK, N.Y. – A famous piece of rock and roll history has changed its tune about going public.
Fender Musical Instruments Corp., which produced guitars strummed by the likes of Buddy Holly and Eric Clapton and famously set on fire by Jimi Hendrix, said late Thursday that it dropped its plans for an initial public offering.
The news came amid a handful of successful IPOs, prompting speculation about the reasoning behind Fender’s decision.
Fender CEO Larry Thomas said current market conditions and Europe’s ongoing economic woes wouldn’t support an IPO that values the company appropriately.
Industry observers said Fender’s slower growth prospects than the tech companies that have recently gone public may have also factored in its decision against moving forward.
The Scottsdale, Ariz.-based company, which sells its guitars in 85 countries, originally filed papers for its offering in March and set a price range of US$13 to $15 per share last week. At the time of its original filing, the overall market was trending up.
Tim Keating, CEO of the investment firm Keating Capital Inc., said IPOs screeched to a halt following Facebook Inc.’s bumpy debut in May. But he said 2012 has still been a very good year for IPOs so far, with a handful of companies launching successful offerings in just the past few weeks.
On Friday alone, Kayak Software Corp., a travel website, and Palo Alto Networks Inc., which makes security software, both went public and posted gains of more than 30 per cent.
But Keating, whose firm invests in companies looking to go public, noted that both of those companies are focused on technology and have potential for significant growth.
“When you look at the growth prospects, what excites IPO investors is the prospect of growing at least 20 to 25 per cent over the next few years and Fender doesn’t have those prospects as a more mature company,” Keating said.
He added that when private equity or venture capital firms own companies like Fender, they look at IPOs as a way to return value to their partners and investors and will only go forward if they think it’s worth it.
Fender, which was founded in 1946 by Leo Fender, has gone through several owners over the years. In 1965, Leo Fender sold the company to broadcaster CBS Inc., which sold it to an investor group 20 years later. Private equity firm Weston Presidio now owns 43 per cent of Fender. The company’s distributor in Japan, Yamano Music, holds the No. 2 stake with 14 per cent of the company.
Thomas J. Murphy, head of the securities and capital markets for the law firm McDermott Will & Emery, said companies like Kayak and Palo Alto need the cash generated by their IPOs to fund their growth plans, while Fender probably does not.
Weak consumer spending also hurts companies like Fender, whose guitars range from a couple hundred dollars for a basic model to several thousand dollars for high-end and custom versions, he said.
“It could be that once they got out and became more familiar with the market, and saw what things were like, they realized it wasn’t the right move for them,” Murphy said.
Fender touts itself as the country’s biggest seller of electric, acoustic and bass guitars. It also makes amplifiers and other instruments including banjos, ukuleles and mandolins, and sells instruments under other brands such as Squier, Jackson, Guild, Ovation and Latin Percussion.
Its classic Strat and Telecaster guitar models, first created in the 1950s, are still made today. In recent years, Fender’s guitars have been used by musicians from Bruno Mars to Shakira.