Steinway Musical Devices (STWY) Begins U.S. IPO Course of

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A Quick Take On Steinway Musical Instruments Holdings

Steinway Musical Instruments Holdings, Inc. (STWY) has filed to raise $100 million in an IPO of its Class A common stock, according to an S-1 registration statement.

the firm manufactures a variety of premium quality pianos and other musical instruments.

STWY has performed impressively over the past few years but faces continued music digitalization risks.

I’ll provide an update when we learn more details about the IPO.

Company

Astoria, New York-based Steinway was founded in 1853 by Henry Steinway to build what many consider to be the world’s finest acoustic piano instruments.

Management is headed by President and CEO Benjamin Steiner, who has been with the firm since September 2021 and was previously a partner at Paulson & Co., an investment management firm.

The company’s primary offerings include:

  • Acoustic grand pianos

  • Player pianos

  • Upright pianos

  • Bespoke pianos

  • Bach and Conn-Selmer instruments

  • Ludwig percussion instruments

Steinway has booked a fair market value investment of $233.2 million as of December 31, 2021 from investors including John Paulson and affiliated entities.

Steinway – Customer Acquisition

The firm sells its pianos through dealer channels as well as direct to consumers through its 33 company-owned retail locations.

Its dealer network consists of approximately 180 dealers worldwide.

Selling, G&A expenses as a percentage of total revenue have been stable as revenues have increased, as the figures below indicate.

Selling, G&A

Expenses vs. Revenue

Period

percentage

2021

25.3%

2020

25.3%

(Source)

The Selling, G&A efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, was 0.9x in the most recent reporting period. (Source)

Steinway’s Market & Competition

According to a market research report by Market Growth Reports, the global market for pianos was an estimated $2.4 billion in 2022 and is forecast to reach nearly $2.7 billion by 2028.

This represents a forecast CAGR of 1.9% from 2022 to 2028.

The main drivers for this expected growth are a moderate increase in demand for new pianos for teaching and performance purposes.

Also, the North American region has a commanding market share, at about 60% of the total market, with China and Europe accounting for another 30% of total demand.

Major competitive or other industry participants include:

  • Jupiter

  • Yamaha

  • Eastman Music

  • Buffet Crampon SAS

  • Pearl

  • Drum workshop

  • Bechstein

  • Mold

  • kawaii

  • Henri Selmer Paris (Ex-US)

Steinway Musical Instruments Holdings’ Financial Performance

The company’s recent financial results can be summarized as follows:

  • Strong topline revenue growth

  • Increasing gross profit and gross margin

  • Growing operating profit and margin

  • Higher cash flow from operations

Below are relevant financial results derived from the firm’s registration statement.

total revenue

Period

total revenue

% Variance vs Prior

2021

$538,350,000

29.5%

2020

$415,856,000

Big Profit (Loss)

Period

Big Profit (Loss)

% Variance vs Prior

2021

$224,615,000

41.1%

2020

$159,184,000

Big Margin

Period

Big Margin

2021

41.72%

2020

38.28%

Operating Profit (Loss)

Period

Operating Profit (Loss)

operating margin

2021

$88,230,000

16.4%

2020

$40,369,000

9.7%

Net Income (Loss)

Period

Net Income (Loss)

net margin

2021

$59,263,000

11.0%

2020

$51,815,000

9.6%

Cash flow from operations

Period

Cash flow from operations

2021

$122,485,000

2020

$58,447,000

(Glossary Of Terms)

(Source)

As of December 31, 2021, Steinway had $43.7 million in cash and $275.7 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2021 was $99.6 million.

Steinway Musical Instruments Holdings’ IPO details

Steinway intends to raise $100 million in gross proceeds from an IPO of its Class A common stock, although the final figure may differ.

Class A common stockholders will receive one vote per share and Class B shareholders will be entitled to 10 votes per share.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

The firm will not receive any proceeds from the IPO, which will go to the selling shareholder. (Source)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management says the firm is not a party to any litigation that may have a material adverse effect on its financial condition or operations.

The listed bookrunners of the IPO are Goldman Sachs, BofA Securities, Barclays and other investment banks.

Commentary About Steinway’s IPO

STWY is seeking to go public to enable certain shareholders to sell part of their stock.

The company’s financials have produced significant topline revenue growth, higher gross profit and gross margin, increasing operating profit and margin and growing cash flow from operations.

Free cash flow for the twelve months ended December 31, 2021, which was an impressive $99.6 million.

Selling, G&A expenses as a percentage of total revenue have been flat as revenue has increased; its selling, G&A efficiency multiple was 0.9x in the most recent calendar year.

The firm currently plans to pay dividends on its shares but has not yet provided an expected rate.

The market opportunity for selling piano musical instruments is reasonably large but expected to grow at a relatively low rate of growth in the years ahead.

That STWY has grown at a much faster rate of growth than the industry is a favorable data point in management’s execution.

Goldman Sachs is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (25.8%) since their IPO. This is a lower-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is the potential for supply chain disruptions or inflation to reduce its sales growth or profitability.

The company also has production concentration risk and management has witnessed a decline in demand for its acoustic pianos in recent decades as musical tastes change away from physical instruments toward digital instruments.

When we learn more information about the IPO, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

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