Piano maker Steinway is going public again: 5 things to know ahead of its IPO


Hedge fund manager John Paulson has often told the story of how her sister cried when her father brought home a baby grand piano and not the Steinway she was expecting because the price of the Steinway was out of reach.

Paulson, who earned billions of dollars in the real estate market before the 2008 financial crisis, grew to acquire not just a Steinway piano (several, in fact), but the entire company in 2013 and is now preparing for take Steinway Musical Instruments. Holdings Inc. returns to public markets after a nine-year stay as a private company.

Insurers, a team of eight banks led by Goldman Sachs, BofA Securities and Barclays, have not yet set the terms of the deal. But the company plans to trade on the New York Stock Exchange, under the symbol “STWY” and not its former symbol “LVB”, a tribute to Ludwig van Beethoven.

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Arriving in the middle of a very dry time for the initial public offerings, the agreement is expected to cause a bit of a stir.

“Steinway should be a refreshing IPO for the market,” said James Gellert, CEO of RapidRatings, a company that evaluates the finances of private and public companies.

“Very strong [financial health] Start-up companies are rare and Steinway seems the right company to emerge despite a volatile stock market. A super brand, a recognizable business, a historical history and a rare asset to enter the market combined with a long-term strength [core health] and strong in the short term [financial health] that’s just what the market needs. “

Gellert referred to RapidRatings metrics for assessing a company’s financial strength, financial health rating or FHR, and basic health score or CHS. The first is a measure of the likelihood of short-term default, and the second assesses the efficiency of a business in a two- to three-year perspective.

Gellert acknowledged that many OPI impulse buyers are looking for high-growth technology and biotechnology companies to fuel the space, “and Steinway is anything but striking and new economy.” However, if investors are looking for a strong business, this will be a welcome offer, he said.

Steinway was launched in 1853 in New York City by German immigrant Henry Engelhard Steinway, who built Steinway’s first piano in a loft on Varick Street in Manhattan.

This first craft has made the company one of the best known musical instrument manufacturers in the world and one of the most revered. Various musicians and artists, from Chinese Lang Lang to recent Grammy winner Jon Batiste, use Steinway pianos for recording and live performances.

The company has two segments of information: piano and band. The latter offers instruments under the Conn-Selmer umbrella. The company has 33 retail showrooms around the world and a network of about 180 distributors with local knowledge and links to music communities.

The company is divided into two reporting units: piano and band.

Steinway Musical Instruments Holdings Inc.

Its main factory is still located in New York, located in Astoria in Queens, and also makes pianos in Hamburg, Germany.

In 2015, the company launched the Steinway Spirio, which in addition to being able to be played like any other piano, can be played alone, allowing consumers to enjoy the recorded performances of renowned pianists at home.

In 2019, this technology was expanded with the release of Spirio | r, to include high-resolution recording and editing, as well as playback capabilities. In 2021, the company launched Spiriocast software, which allows consumers to instantly play live performances synchronized with video and audition of a Spirio | r piano to another around the world.

Here are 5 things you need to know about Steinway before it goes public:

It is profitable and the outlook is positive

Steinway had net income of $ 59.3 million in fiscal year 2021, up from $ 51.8 million in fiscal year 2020, according to its takeover bid documents. Sales rose to $ 538.4 million from $ 415.9 million.

RapidRatings confirms its strong underlying health with an FHR of 79 in 2021, compared to 60 in 2020. This places it firmly in the low-risk category of the company.

Steinway’s CHS rose to 67 in 2021 from 47 in 2020, suggesting “high levels of efficiency and a solid foundation that supports long-term viability and sustainable performance,” RapidRatings said.

In fact, the company earned a high overall score on leverage, liquidity and earnings performance. It showed strength in five of the seven performance categories, and cash flow was positive most recently, with very strong coverage of capital expenditures and debt.

The piano segment remains the dominant one, accounting for 75.5% of sales in fiscal 2021. The Americas region accounted for 53.6% of sales, followed by 28.4% in the Asia-Pacific region.

Steinway commercial locations in Munich, New York, Tokyo and Paris, clockwise from above.

Steinway Musical Instruments Holdings Inc.

Because pianos are a “high-performance, professionally guaranteed offering, meticulously crafted through an intensive process that lasts at least six months,” the company can only produce a limited volume and has to sell them at a high price.

This leaves the company sensitive to macroeconomic conditions and the coronavirus pandemic, which not only closed stores but forced the cancellation of events and recitals, which are key means of marketing its products.

In 2013, the company initially negotiated a sale to the private equity firm KKR & Co. for $ 35 a share to strengthen its financial position. It was during a period of “going to the store” that he allowed other bidders to get into the fight that Paulson agreed to pay $ 40 per share, or a total of $ 512 million.

Since then, Paulson has invested in technology, manufacturing and machinery processes, workforce training, and company-owned showrooms, including the Steinway Hall commercial and performance space. in Midtown Manhattan, which was designed by architect Annabelle Selldorf.

Steinway is a luxury play

Steinway pianos are not cheap. A grand piano costs between $ 60,000 and $ 340,000, according to the IPO prospectus. A smaller upright piano starts at $ 40,000.

This places the company in the global category of luxury personal property, which is expected to grow to $ 1.3 trillion in 2026 from $ 945.8 billion in 2021, according to Euromonitor data quoted in the brochure.

But luxury goods, which include more expensive cars, jewelry, yachts and other high-end items, are a highly competitive field.

“If the Steinway brand becomes less attractive to consumers and the HNWI (high net worth) and UHNWI (ultra high net worth) populations choose to buy other luxury products instead of our Steinway pianos, the demand for our products could decrease and have an adverse impact on our financial situation and results of operations “, warns the company.

Steinway is making a big bet on China

Steinway is not ashamed of his ambitions to grow up in China, which is home to the second largest group of high net worth individuals in the world after the U.S., and many aspiring concert pianists.

China is the world’s largest piano market with an average of about 400,000 sold a year, according to Steinway’s prospectus, compared to an average of about 30,000 a year in the US.

The company’s main production facility is located in Queens, New York City, and another manufacturing site is in Hamburg, Germany.

Steinway Musical Instruments Holdings Inc.

About 30 million Chinese children take piano lessons, according to statistics from the Chinese Musicians Association, some likely influenced by people like Lang Lang and Yuja Wang, both of whom have business dealings with Steinway.

“More than 40,000 children participated in the 2021 Steinway International Children’s and Youth Piano Competition in China,” according to the prospectus.

“To further serve the growing population of developing pianists in China, Juilliard School placed one of the largest piano orders in Steinway’s history in 2019 for its first overseas campus in Tianjin, China.” .

This trend is unlikely to change any time soon, given the broad support provided by the Chinese government to develop musical talent. The government has invested heavily in opening new concert halls, and the number of Steinway piano-owned concert halls has grown to 134 in 2021, from just 11 in 2012.

Creating beautiful musical instruments requires rare skills, and that’s a risk

Steinway pianos are made by highly skilled craftsmen through a craft process that takes up to six months. These workers are not ten per cent.

“Many of the skills we need are not normally taught in traditional universities or schools,” the prospectus notes. “For example, the process of bending the edge of the Steinway piano is an acquired skill and is not widely taught. Similarly, the skills needed to build and repair our pianos are only taught in highly specialized craft schools. or are passed down from generation to generation “.

If something disrupts this chain, the company may not be able to “sustain our historic technologies” by derailing its business. At the moment, it is based on training and internal mentoring.

“If we are unable to retain or attract employees with the technical expertise to promote the growth of our Spirio line, our business, reputation and financial condition could be adversely affected,” the prospectus admits.

You need to strengthen your accounting oversight

Steinway admits a risk factor that could be more closely associated with a startup or a young company with little experience in public market disclosure demands.

“In connection with the audit of our 2020 consolidated financial statements, we identified certain significant weaknesses in our internal controls over financial reporting,” the company says in its prospectus. “Specifically, we did not have sufficient processes for the provisioning and governance of user access to economically significant systems that resulted in a lack of segregation of tasks related to newspaper entries.

The company also did not have adequate processes in place to allow for “accurate and timely financial reporting under GAAP in relation to non-cash share compensation and other compensation,” it continues.

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