Steinway Musical Instruments Inc., the 160-year-old piano maker going private in a $438 million deal with Kohlberg & Co., still faces daunting competition from...itself.
European manufacturers Boesendorfer and Fazioli are contenders, too. But "used Steinway pianos provide the most significant competition in the high-end piano market," the company said in its most recent annual report.
One rarely, if ever, comes across an estate sale where someone just wants the dusty, old piano out of the living room and somehow failed to notice that it was built by Steinway & Sons. People who have never played a note often know the difference between a Steinway and most other pianos, and they know what they are worth.
"It's usually left to someone in the will, and there are sometimes disputes over who gets it," said Anthony Gilroy, the company's marketing and communications director.
Steinways appreciate steadily at about 4% a year--better than some stocks, bonds and mutual funds--because the company raises its prices every year to maintain its renowned level of quality.
It has done this since its 1853 founding, through the industrial revolution and the technological revolution--through recessions, depressions and wars. "How many companies can say they got through the Civil War?" Mr. Gilroy said.
A used Steinway goes for about 75% less than a brand-new one, but its value will generally follow the trajectory of the company's consistent price increases.
Last year, the company sold 2,001 pianos, generally ranging in price between $56,600 and $142,300, according the company's annual report. Limited editions with special veneers can sell for as much as $218,000. And one of the world's most expensive pianos--a Steinway art case piano--fetched $1.2 million at a 1997 auction.
Next year, Steinway is expected to hit another historic milestone when it rolls off its 600,000th piano. Most of these pianos are still playing today, though some have been destroyed by fires and floods. And they are worth many times their original retail price tags.
A properly maintained Model D concert grand piano that sold for $13,500 in 1975 is worth $137,400 today, Mr. Gilroy said. A smaller Model S--just over five feet long and can fit in a living room--sold for $5,540 in 1975 and is similarly worth 10 times that amount today.
When these pianos hit the secondary market, they compete directly with the company that made them. I have a friend with an 1890s vintage Steinway in her living room. It still plays beautifully. In our disposable society how many companies have to compete with something they built two centuries ago?
Kohlberg, which announced its deal to acquire Steinway on Monday, has enough challenges.
Steinway said in its annual report that grand piano sales declined by an average of 20% annually in the U.S. from 2005 to 2008. Then came the financial crisis and the death of Henry Z. Steinway, the great grandson of the founder and the last Steinway family member to be president of the company. He died in 2008 at age 93.
Steinway has since managed to offset sales declines in the U.S. and Europe with sales in Asia. But it says sales "continue to be at depressed levels."
Steinway has weathered all storms. There was a time when the piano was the center of the household, but then came the phonograph, the radio and then the television. With today's digital technology, if you still want to play a piano, you can do it on an iPad.
Through all of this, the Steinway acoustic piano goes up in value each year.
If there are still a half million Steinways still playing in the world today--and you could conservatively say they are worth a mere $10,000 apiece--then a company that is selling for $438 million is competing with $5 billion worth of its own product.
"People always say it's so expensive to own a Steinway," Mr. Gilroy said. "We say that over time, a Steinway is actually the least expensive piano to own."
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. The column is published each Tuesday and Thursday at 9 a.m. ET. Contact Al at email@example.com or tellittoal.com)