Steinway IPO seeks to catch the ear of the world’s greatest piano market

John Paulson remembers his sister crying when their father introduced dwelling a child grand piano as a result of the household had not been capable of afford the Steinway she had hoped for.

Paulson grew as much as be a hedge fund virtuoso slightly than a live performance pianist, making billions of {dollars} shorting subprime mortgages earlier than the monetary disaster. However the fortune that supplied allowed him to accumulate three Steinways after which, in 2013, America’s most venerable instrument maker itself.

This week, 9 years after his $512mn bid beat presents from Kohlberg & Co and South Korea’s Samick Musical Devices, Paulson introduced plans to return the 169-year-old firm to the general public markets, promoting a few of his shares however retaining agency voting management.

His pitch for Steinway Musical Devices Holdings is that the corporate, based by a German immigrant known as Henry Engelhard Steinway in a New York Metropolis loft in 1853 has turn out to be one of many world’s nice luxurious manufacturers, a singular play on China’s rising shopper demand and an innovator in expertise.

Paulson has but to reveal the valuation he’s hoping for from the itemizing, which will likely be led by Goldman Sachs. However the prospectus Steinway filed with the US Securities and Change Fee on Thursday positions it as a participant in a worldwide luxurious items market that Euromonitor forecasts to develop at 6.4 per cent a yr to just about $1.3tn a yr by 2026.

One of many greatest drivers of that progress, it notes, has been the surge in discretionary spending in China, the place Knight Frank estimates that the variety of people price $30mn or extra has grown 145 per cent in 5 years.

China is already the world’s largest piano market, promoting about 400,000 pianos a yr to its 40mn practising pianists, in comparison with the 30,000 bought yearly to the 6mn Individuals who play commonly, Steinway’s prospectus notes.

Buoyed by Beijing’s investments in new classical music venues, the variety of Chinese language live performance halls that personal Steinway pianos has grown from 11 to 134 up to now decade, however the firm presently sells solely half as many grand pianos in China as within the US. 

Already, Steinway has sought to treatment that below Paulson, partnering with movie star Chinese language live performance pianists akin to Lang Lang and opening showrooms in Chinese language cities. However, it instructed buyers, it sees “quite a few tailwinds” propelling its hopes of additional progress within the nation.

The corporate nonetheless takes a minimum of six months to make each grand piano by hand at its factories in Astoria, New York, and Hamburg, Germany, however Paulson has sought to steadiness that heritage with a wager on expertise.

Capital spending has tripled since 2013 because it developed and launched the Steinway Spirio, a piano that may be performed usually or that can play itself with what the corporate says is “the identical nuance, energy and fervour as a reside efficiency”.

The premium-priced Spirio now accounts for nearly a 3rd of its piano gross sales. Loaded up with recordings from artists from Glenn Gould to Billie Eilish, the corporate stated, the Spirio considerably expands its market to incorporate non-piano gamers.

Increasing demand and restricted manufacturing capability has helped Steinway push up its common sale value by 48 per cent up to now 5 years. Its grand pianos now promote for $60,000 to about $340,000, though one restricted version instrument fetched $2.4mn in 2016.

That has boosted revenues and income. In 2012, the final yr earlier than Paulson’s acquisition, it had internet gross sales of $354mn and internet earnings of $13.5mn. In 2021, internet gross sales hit $538mn and it reported internet earnings of $59mn, or $71mn on an adjusted foundation. Money owed have been minimize from $312mn to $51mn up to now 5 years.

Steinway was family-owned till 1972 and first went public in 1996 below the ticker image LVB, for Ludwig van Beethoven. It intends to make use of STWY as its ticker when it lists on the NYSE.

When Paulson purchased Steinway in 2013, the outlay represented a small fraction of his wealth. Having benefited by betting towards subprime mortgages, he additionally made profitable bullish investments in shares close to the underside of the market in 2009. His internet price hit $11bn, in accordance with Forbes, making him considered one of Wall Avenue’s 10 richest buyers.

However as monetary markets have soared over the previous decade, he misplaced billions of {dollars} due to fallacious method inventory market bets, notably on pharmaceutical and power corporations.

Institutional buyers withdrew belongings from his hedge fund, Paulson & Co, which laid off scores of its merchants and analysts after which converted to a family office two years ago.

By Forbes’ estimates, Paulson’s internet price has fallen to $4bn since he purchased Steinway, at the same time as US inventory markets greater than doubled. If Steinway listed at a greater than $1bn valuation, his stake — held by way of an organization known as Paulson Pianissimo and carrying 10 occasions the voting rights of extraordinary shares — can be his largest inventory funding, in accordance with filings.

The acquisition has had different benefits. When Paulson & Co left its New York workplace throughout from the Rockefeller Middle, it discovered extra modest area in Steinway’s places of work, the place it pays the corporate a $2mn annual lease.

Lastly, Paulson has been capable of increase the gathering of the Steinways his household by no means had, with a free piano on mortgage from the corporate that will in any other case have price him $14,000 a yr to lease.

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