Could Fender’s IPO rock young investors?

19th July 2012

While the guitars like the Fender Stratocaster have long been iconic symbols in the music world, buying a piece of the heritage has always been an expensive pursuit. Buying one new is likely to set you back at least £700, and for those dream of owning the guitar used by their hero the cost can rise exponentially.

In 1998, Paul Allen, co-founder of Microsoft, spent $2 million on a 1968 Stratocaster played by Hendrix at Woodstock in 1989 – enough to make even the most devoted fans' eyes water.

Yet with the IPO Fender-followers will be able to buy a piece of their beloved company for between $13 and $15 a share. If the company is smart, this could not only provide an opportunity to raise as much as $160.5 million but also open up the company to engage with guitarists and enthusiasts.

Much has been written about a lost generation of investors as confidence in financial markets for Generation Y has been rocked by rolling crises and scandals. Some brands, however, command a degree of loyalty that could help bridge the gap between the opportunity of investing and the understandable concerns raised by recent events.

Fender offers one such bridge. With net sales of $700.6 million last year – up from $617 million in 2010 – earning the guitar maker a $19 million profit, the company appears to be in rude health. Furthermore in terms of market share Fender claims to be the largest dealer in electric and acoustic guitars in the world, ahead of privately-owned Gibson Guitars.

In order to inspire non-traditional investors they will have to provide more than just financial statements, however. People buy Fender guitars not simply to be part of its illustrious tradition but to become a member of the community of Fender owners. They may demand more from a company than an investor looking to make a quick buck but they can also reward genuine engagement with loyalty.

Already some within these communities have expressed concern over the IPO. On the Fender community forum texasguitarslinger wrote:

"People just aren't spending as much on music anymore. Whether it's recorded music, lessons, or instruments. The unfortunate truth is that most people view music as a passing hobby, and they don't invest much time (or money) in it. Over the past two or three years the music store that I work at has seen a large decrease in business…We're just playing things very safe in hopes we'll outlast the bad economy. So far it's working all right, but as hard as it's hitting us I can't imagine how it's hitting all the big chain stores like Guitar Center and the manufacturers."

Other posts were more supportive of the move, including this one from somebizarredude:

"In all honestly I do not see fender stock value increasing much over base very quickly. It's not a stock you buy to flip in a month but I also do not see fender going bankrupt anytime soon, so i plan on investing. Fender has been around for a long time and will remain around for a long time. Granted there have been some changes over the years but its a name that will stand the test of time. Who knows, by the time my children get my shares they may be worth a bit more."

In order to reassure their already active supporter base over the wisdom of the IPO move Fender might consider offering something in exchange for this brand loyalty. The firm already gives website users the ability to design their own custom guitars, but could this concept be extended to allowing shareholders a real say (and vote) in the development of the business?

Perhaps those who would struggle to afford a piece of Fender history might yet leap at an opportunity to become an active part of its future.

 

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