Steinway Musical Instruments (STWY) Begins U.S. IPO Process

A quick overview of Steinway musical instrument holdings

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

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

STWY has achieved impressive performance over the past few years, but faces continuous risks of music digitization.

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

Company

Steinway, based in Astoria, New York, was founded in 1853 by Henry Steinway to build what many consider to be the finest acoustic pianos in the world.

Management is led 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 main offerings include:

• Acoustic grand pianos

• Player pianos

• upright pianos

• Custom pianos

• Bach and Conn-Selmer Instruments

• Ludwig percussion instruments

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

Steinway – Customer Acquisition

The company sells its pianos through dealers as well as directly to consumers through its 33 company-owned outlets.

Its dealer network consists of approximately 180 dealers worldwide.

Selling, G&A expenses as a percentage of total revenue remained stable while revenues increased, as shown in the figures below.

Sales, G&A	Expenses vs income
Period	Percentage
2021	25.3%
2020	25.3%

(Source)

The sales effectiveness multiple, G&A, defined as the number of dollars of incremental new revenue generated from each dollar of sales spend, G&A, was 0.9x during the most recent reporting period. (Source)

Steinway’s market and competition

According to a market research report by Market Growth Reports, the global piano market was estimated at $2.4 billion in 2022 and is expected to reach nearly $2.7 billion by 2028.

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

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

Additionally, the North American region holds a dominant market share, at around 60% of the total market, with China and Europe accounting for another 30% of the total demand.

Major competitors or other industry participants include:

• Jupiter

• Yamaha

• Eastman music

• Buffet Crampon SAS

• pearl

• Drum Workshop

• Bechstein

• Schimmel

• kawaii

• Henri Selmer Paris (Ex-USA)

Financial performance of Steinway Musical Instruments Holdings

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

• Strong revenue growth

• Increase in gross profit and gross margin

• Growth in operating profit and margin

• Higher operating cash flow

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

Total revenue
Period	Total revenue	% deviation from before
2021	$538,350,000	29.5%
2020	$415,856,000
Gross profit (loss)
Period	Gross profit (loss)	% deviation from before
2021	$224,615,000	41.1%
2020	$159,184,000
Gross margin
Period	Gross 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 profit (net loss)
Period	Net profit (net loss)	The net margin
2021	$59,263,000	11.0%
2020	$51,815,000	9.6%
Operating cash flow
Period	Operating cash flow
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 for 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, though the final figure may differ.

Class A common shareholders 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 companies with multiple classes of shares in its index.

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

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

The presentation by management of the company’s roadshow is not available.

With respect to ongoing legal proceedings, management asserts that the company is not party to any litigation that could have a material adverse effect on its financial condition or business.

Listed bookrunners at the IPO are Goldman Sachs, BofA Securities, Barclays and other investment banks.

Commentary on Steinway’s IPO

STWY is looking to go public to allow certain shareholders to sell some of their shares.

The company’s financial statements delivered significant revenue growth, increased gross profit and gross margin, increased operating profit and margin, and increased operating cash flow.

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

Selling, G&A expenses as a percentage of total revenue remained stable as revenue increased; its sell efficiency multiple, G&A was 0.9x in the most recent calendar year.

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

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

The fact that STWY has grown at a much faster rate of growth than the industry is a favorable data point in executive execution.

Goldman Sachs is the lead underwriter and IPOs conducted by the company over the past 12 months have generated a negative average return (25.8%) since their IPO. This is a lower level performance for all major underwriters over the period.

The main risk to the company’s outlook is the possibility that supply chain disruptions or inflation will reduce its sales growth or profitability.

The company also has a risk of production concentration and management has witnessed a decline in demand for its acoustic pianos over the past few decades as musical tastes shift from physical to digital instruments.

When we have more information about the IPO, I will give a final opinion.

Expected IPO pricing date: to be announced.