Piano maker Steinway goes public again: 5 things to know before its IPO


Hedge fund manager John Paulson often recounted how his sister cried when her father brought home a grand piano and not the Steinway she had hoped for because the price of the Steinway was out of reach.

Paulson, who made billions of dollars shorting the housing market before the 2008 financial crisis, grew up to acquire not just a Steinway piano (several, in fact), but the entire company in 2013 and is preparing now to take Steinway Musical Instruments Holdings Inc. back into the public market after a nine-year stint as a private company.

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

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Coming amid a very dry spell for IPOs, the deal is expected to generate some buzz.

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

“Very strong [financial health] debuting companies are rare, and Steinway seems like the right company to emerge despite a volatile stock market. A great brand name, a recognizable company, a rich history and a rare asset to come to market, combined with a solid long-term track record [core health] and strong in the short term [financial health] is exactly what the market needs.

Gellert was referring to RapidRatings measures to assess a company’s financial strength, its Financial Health Score, or FHR, and its Basic Health Score, or CHS. The first is a measure of the short-term probability of default, and the second assesses a company’s efficiency over a two- to three-year perspective.

Gellert acknowledged that many aggressive IPO buyers are looking for high-growth tech and biotech companies to fuel the space, “and Steinway is anything but flashy and new economy.” However, if investors are looking for a solid company, this offer will be welcome, he said.

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

This early craftsmanship has made the company one of the world’s best-known and most revered musical instrument makers. A range of musicians and artists, from Chinese Lang Lang to recent Grammy winner Jon Batiste, use Steinway pianos for recording and live performance.

The company has two reporting segments: piano and band. The latter offers instruments under the aegis of Conn-Selmer. The company has 33 showrooms around the world and a network of approximately 180 dealers with local knowledge and connections to music communities.

The company is divided into two business units: piano and orchestra.

Steinway Musical Instruments Holdings Inc.

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

In 2015, the company launched the Steinway Spirio, which in addition to being playable like any piano, can play on its own, allowing consumers to enjoy recorded performances by renowned pianists in their own homes.

In 2019, this technology was extended with the launch 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 stream live performances synchronized with video and auditing from a Spirio | r piano to another across the world.

Here are 5 things to know about Steinway ahead of its IPO:

It is profitable and the outlook is positive

Steinway posted net income of $59.3 million in fiscal 2021, compared to $51.8 million in fiscal 2020, according to its IPO filing documents. Sales increased from $415.9 million to $538.4 million.

RapidRatings confirms its strong underlying health with an FHR of 79 in 2021, up from 60 in 2020. This puts it firmly in the company’s low-risk category.

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

In fact, the company scored high overall in terms of leverage, liquidity, and earnings performance. It demonstrated strength in five of seven performance categories and posted positive cash flow in the most recent year with very strong capital expenditure and debt coverage.

The piano segment remains the dominant segment, 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 outlets, clockwise from top, in Munich, New York, Tokyo and Paris.

Steinway Musical Instruments Holdings Inc.

As the pianos are a “high performance, professionally approved offering, meticulously crafted through an intensive process lasting at least six months”, the company can only produce a limited volume and must sell them at a high price. .

That leaves the company susceptible to macroeconomic conditions and the coronavirus pandemic, which has not only closed stores but forced the cancellation of events and recitals, which are key ways to market its products.

In 2013, the company first negotiated a sale to private equity firm KKR & Co. for $35 per share to shore up its financial position. It was during a “go shop” period allowing other bidders to enter the fray that Paulson agreed to pay $40 per share, a total of $512 million.

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

Steinway is a luxury game

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

That puts the company squarely in the global personal luxury goods category, which is expected to grow to $1.3 trillion by 2026 from $945.8 billion in 2021, according to Euromonitor data cited in the prospectus.

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

“If the Steinway brand becomes less appealing to consumers and the HNWI (high net worth) and UHNWI (ultra high-net-worth) populations choose to purchase other luxury products instead of our Steinway pianos, the demand for our revenues could decline and adversely impact our financial condition and results of operations,” the company warns.

Steinway makes a big bet on China

Steinway isn’t shy about expanding into China, home to the world’s second-largest group of wealthy people after the United States — and many aspiring concert pianists.

China is the world’s largest market for pianos with an average of about 400,000 sold per year, according to Steinway’s prospectus, compared to an average of about 30,000 per year in the United States.

The company’s main production site is in Queens, New York, 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 Lang Lang and Yuja Wang, both of whom have business dealings with Steinway.

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

“To better serve the growing population of developing pianists in China, The 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 offered by the Chinese government to develop musical talent. The government has invested heavily in opening new concert halls, and the number of concert halls that have Steinway pianos has risen to 134 in 2021 from just 11 in 2012.

Creating beautiful musical instruments requires rare skills – and it’s a risk

Steinway pianos are made by highly skilled craftsmen in an artisanal process that takes up to six months. These workers are barely ten for a penny.

“Many of the skills we need are not usually taught in universities or traditional schools,” observes the prospectus. “For example, the process of bending the edge of the Steinway piano is a learned and little taught skill. Likewise, the skills needed to build and repair our pianos are only taught in highly specialized trade schools or passed down from generation to generation.

If something upsets this chain, the company may not be able to “support our legacy technologies”, derailing its business. For now, it relies on in-house training and 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,” concedes the prospectus. .

It must strengthen its accounting control

Steinway admits a risk factor that might be more closely associated with a startup or young company with little experience with public procurement disclosure requirements.

“As part of the audit of our consolidated financial statements for fiscal year 2020, we identified certain material weaknesses in our internal controls over financial reporting,” the company says in its prospectus. “Specifically, we did not have sufficient processes for provisioning and governing user access to financially important systems, which resulted in a lack of segregation of duties related to journal entries.

The company also did not have adequate processes in place to enable “accurate and timely GAAP financial reporting with respect to stock-based and other non-cash compensation,” it continues.

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