Explainer: What the Steinway Sale Means for Classical Music Fans
Tuesday, July 02, 2013 - 11:00 AM
When Kohlberg & Co. made the surprise announcement on Monday that it was buying Steinway, the private equity firm immediately took pains to assure the public that it wouldn't start cutting corners at the 160-year-old piano manufacturer. Christopher W. Anderson, a Kohlberg partner, said it would ensure that "the artisanal manufacturing processes that make the company’s products unique are preserved, celebrated and treasured."
But the deal has raised questions from pianists and admirers of the New York brand, particularly coming after the sale of its 57th Street showroom on Friday. Here are some of the most common ones:
Why was Kohlberg interested in Steinway? And why would Steinway sell?
Private equity groups have their eyes squarely on the luxury goods market right now as they seek to profit from the recovering finances of the wealthy. For example, retailers like Saks Fifth Avenue and Neiman Marcus recently have been the target of private equity suitors, as The Street reported on Monday. Steinway, whose pianos sell for as much as $218,000, fits this category. Moreover, it has been expanding into Asian markets, where there's lots of new wealth and a demand for better-quality instruments.
What is Kohlberg’s reputation? Will it respect – and protect – the Steinway brand?
Kohlberg, a Mount Kisco, NY, firm, is known to focus on mid-sized companies, and not the kind of huge leveraged buyouts that have attracted negative attention in recent years. Its portfolio includes manufacturers of windshield wipers and hockey equipment. "I'm not convinced they're planning to gut Steinway" said Steve Cohen, a veteran piano industry consultant and owner of Jasons Music Center, a dealer in Pasadena, MD. "I don't think it makes sense to gut Steinway. It has an incredible reputation. They're a brilliant marketing company."
Cohen also believes that Steinway wouldn't want to upset Kim Jong Seop, an influential board member and the owner of Samick Musical Instruments, a Korean manufacturer with a 31.3 percent stake in Steinway. Kim essentially bailed out Steinway when times were tough and there has been speculation he would eventually buy the company (and he still could swoop in and make a competing bid, according to the "go shop" terms of Monday's deal).
Will Steinway no longer be a family-owned business?
In fact, it's been over 40 years since Steinway was family-owned. Henry Z. Steinway, the founder's great-grandson, sold the company to CBS in 1972. In 1985, it was sold again, to a group of Boston-area investors, which developed Steinway Musical Instruments, a conglomerate. It embarked on a series of mergers and acquisitions, which included the Selmer, the band instrument manufacturer.
What happens to Steinway's factory in Astoria, Queens?
There's long been speculation that Steinway will sell its Queens factory, where 500 workers turn out some 3,000 pianos a year. It sits on highly valuable waterfront property and constitutes a large portion of the company's value. Some observers note that Samick, the majority shareholder, has a 200,000-square-foot headquarters in Gallatin, TN, which recently began operating as a piano manufacturing plant. It would be significantly cheaper for Steinway to move manufacturing to Tennessee, though this would raise questions about quality control. The New York Post reported Tuesday that Steinway plans to add employees in Queens.
Bottom line: should piano aficionados be worried?
Cohen points to Bain Capital's 2007 purchase of Guitar Center as a cautionary example. He notes how the instrument retailer has been in financial decline for some time, closing dozens of stores this year and recently seeing its credit rating drop. But Steinway has endured takeovers before, said Larry Fine, author of The Piano Book. He believes the US-made Steinway pianos have improved of late as operations in Hamburg and New York have consolidated. "The company's been remarkably stable," Fine said. "Through all of these sales, the pianos have overall improved and the management has been very competent and it’s transcended the ownership. I'm not particularly worried."
What do you think of the Steinway sale? Watch a video on the making of a Steinway and leave your comments below: