Fender Bender: What Is The Future of Fender Guitars?

Ever since Fender pulled out of its IPO two years ago, they’ve been going through a ton of changes.

Some of those changes have left us scratching our heads.

Prior to the failed IPO, Fender was owned by Weston Presidio, a venture capital firm. Of course, the name at the front of Fender was Larry Thomas. Larry Thomas should sound familiar to anyone familiar with the history of Guitar Center. As the CEO from ’96 – ’04, Larry Thomas was the man that helped build GC into the monolith that it is. He joined Fender in 2009 and things haven’t been as successful as they were with GC under his watch.

Omar Akhtar published a brilliant article on Fender’s failed IPO back on July 20^th of 2012. Basically what is says is this:

When Fender filed with the SEC for their IPO, they noted that they would use their proceeds to pay down a portion of their $257 million debt.

The debt issue can’t be leveled at Larry, though. Weston Presidio bought controlling stake in Fender for $57.8 million in 2001. That money went to pay shareholders from Fender’s Buyout from CBS in 1985. Four years later, Weston Presidio recapitalized the company with $320 million debt-financing package. Of course, Weston Presidio wasn’t going to take that debt on themselves. So, part of the deal was that Fender now owed Weston Presidio $215 million in dividends and bonuses.

That’s right. The owners of Fender borrowed money to “recapitalize” the company and made the company pay that money back in dividends and bonuses.

I should try and run my business this way. I’d be both rich and in a shit ton of debt at the same time.

Much of Fender’s accrued debt comes from their habit of purchasing other companies; Guild/DeArmond (1995), Jackson/Charvel (2002), Gretsch (2003), SWR (2003), Tacoma (2004), SUNN (2009), and Most notably Kaman (2007) which included brands like Ovation, Takamine, Hamer, and Jasmine. As you might’ve noticed, many of the companies that Fender had purchased are never heard from again.

Sure, technically Tacoma, Guild, Hamer, and Jackson are still out there, but they are a shadow of their former selves.

Anyway, back to Fender.

So, with a failed IPO and a huge amount of debt, Weston Presidio was looking to dump the hell out of Fender. And Servco was ready to buy. In late 2012, Servco agreed to buy Weston Presido’s portion of Fender.

Honolulu based financial firm Servco has been involved with FMIC since 1985. Servco partnered with TPG financial to completely take over Fender. Together, Servco and TPG hold majority share of the company. After refinancing and pumping more equity into Fender in the first quarter of 2013, both Servco and TPG own “equal stakes and more than 50%” of the company. Although exactly how that worked out is not being made known.

Since the take over, Fender has made some ballsy moves. First, Fender made the move to let customers order direct from their website. While this move is currently only limited to “custom-configurable” guitars, I’m sure it still left a bad taste in the mouths of many of their dealers.

Next, they decided not to renew their dealership agreements with several of their dealers, even high-performing ones.

Could be that they saw the writing on the wall with Guitar Center’s increasing instability. Brands like PRS have started to distance themselves from Guitar Center and brands like  Mesa Boogie and Music Group severed their ties all together. Why wouldn’t Fender do the same?

Fender’s move extends beyond just GC, though, and directly effects many of the independent stores as well. So, it doesn’t seem likely that their direct ordering venture is going to be limited to just “customizable” guitars.

Then Larry Thomas left. From what we can tell, Larry’s contract was up in March of this year. So, either the company didn’t want him to continue, or he didn’t want to continue. Either way, it makes for a huge change to see Larry leaving.

In April of this year, Fender even shut down the New Hartford Factory, ensuring that there is no longer such a thing as a US made Ovation guitar. Guild and Hamer guitars were also being produced there. The Hamer line was ceased altogether last year

“It’s the end of an iconic American brand,” Richard Hall, a worker at the plant, told The Republican American newspaper. “In the 1970s and ’80s, just about every big touring band was playing Ovation.”

For Guild, one saving grace is that Fender recently agreed to sell the Guild name to Cardoba Music Group. This could be very good news for the Guild brand. With a quality builder of acoustic instruments like Cardoba at the reigns, hopefully Guild will relive some of its glory days.

Interesting side note: The president of Cardoba is Jonathon Thomas who is the son of Larry Thomas. Thanks to Peter Hodgson over at Iheartguitarblog.com for pointing this out. 

Who’s got two thumbs and is replacing Larry Thomas as president of Fender?

This guy!

His name’s Bob.

Bob Roback has tons of experience in the Music industry. Just nothing to do with musical instruments. Interestingly, he’s made his name through technological cloud-based systems. To recap: Fender starts selling direct through their website. Then they hire a dude who made his name through creating innovative ways to share and sell music online.

Nope! Nothing to see here!

Of course with Guitar Center in such a hizzy lately, it’s not a complete surprise that Fender is looking to move away from the whole dealer/manufacturer relationship thingy. Of course, the question is, how far are they going to go? Will Fender completely sever ties with their dealers? Or will they continue selling their low-end gear through them? Or, will they try to work with the dealers to make sure that everybody’s interests are covered? Can they continue to service their debt? And, will they continue their close relationship with Guitar Center?

Let us know what you think. And keep us posted if you hear anything about what’s going on at Fender!

Tiny URL for this post: