Saturday, July 21, 2012

How Would Rock 'n' Roll Sound without Fender Guitars?

Because I was unable to fall asleep thanks to a late afternoon nap, I checked the news and was kind of dismayed to read about Fender not proceeding with its Initial Public Offering (IPO). Not that I wanted them to go through with it (heck, I didn't even know they were going public), but it made me wonder why they were going public in the first place. The only reason I could think of is that they need the money for one reason or another.

But as I got further into the article, I read that a private equity firm owns a pretty good portion of Fender which could be good or bad depending on how you look at it. This much I know after listening to three weeks' worth of NPR's Planet Money:  private equity firms generally work by people in the firm establishing a private equity fund. This fund is created by borrowing money from banks, money put up by investors, and also some of the firm's own money. The private equity firm will figure out what the problem is with a company, buy all of their stocks, fix the company, and then have an IPO to recoup their own investment and to repay the borrowed money to the bank. Prior to the IPO, the firm will usually go around to other investors and describe why they should own stock in the company. I think the analogy NPR used was flipping houses. It's pretty similar.
This is all fine and gravy, baby, but there's only one catch. When the company is bought by the firm, the company essentially takes on whatever debt it cost for the firm to acquire them and if nobody wants to buy their stock they go bankrupt or are sold off bit by bit.
So with all the musicians and rock fans in the world, why wouldn't Fender want to continue with its IPO?
Well, if you can't find anybody to buy your stock, that would be a pretty good reason.
CNNMoney reports that Fender chose not to continue after several investors claimed that the company was overvalued and that they didn't see a lot of growth for the company. But it could also just be that the stock market isn't that great right now and that they're holding out for the right time. Then again, their guitars that are made in the USA are a tad pricey which would be hard to justify in this economy. Who knows? Fender makes their own brands, but they also make Gretsch and Jackson. Maybe Fender can start selling off some of its lesser assets until it's just a big custom shop in California with another manufacturing plant in Mexico.
But if they do go bankrupt that would be the death of an icon for the music industry. Think of the reaction if General Motors went bankrupt. Oh wait, they already did. But think of it as if General Motors just shuttered everything, paid off whatever debt they could, and just quit making cars.
Fender guitars are the most well-known guitars all over the world, and that's no lie. Buddy Holly played a strat. So did Jimi Hendrix, Stevie Ray Vaughan, Eric Clapton, Buddy Guy, John Mayer, George Harrison, Bonnie Raitt, Eddie Van Halen, Mark Knopfler and lots of other musicians. Strats started off with the burgeoning of rock and roll in the 50's, tripped through the weird, experimental 60's, continued through the 70's with its hard rock bands, marched smartly through the 80's, grunged out in the 90's, and they're still being used to this day.
How would rock and roll sound without a Fender?
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