An Icon Is For Sale... Should I Buy It?

Hanging with a group of guitar builders this summer, I heard about an iconic company up for sale; according to sources, this guitar company’s book value is close to $350,000 — less than half of their appraised value and asking price. Upon further investigation, confirmed by a potential buyer late last summer, the asking price was $1.2 million. The huge difference between book value and asking price had me scratching my head, and it led me down the research rabbit hole of ‘value’.

How can any iconic guitar manufacturing company be sold for only $1.2 million? Or, more appropriately, how could the number on the price tag be twice as much as it’s actual value? If I had $1.2 million, what would I be getting?!

(I’ve reached out to this iconic company multiple times, but they have chosen not to respond. It was then that I decided to reach deeper into the overall potential of this topic regarding ‘value’. While there are some examples used in this article, these companies are not being quoted, and are used strictly for explanation purposes in this editorial.)


How can a guitar manufacturing company be sold for more than it’s worth?

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To start, I researched the difference between ‘book value’ and ‘worth’, and how it relates to the assessment of a company. Simply put, book value is the total on the books - the company’s printed assets, minus the company’s printed liabilities, equal the book value. Assets are considered parts and materials, salable product, real-estate (manufacturing facility/office building), tools and equipment, intellectual property like active trademarks and licensable designs. Liabilities include, but are not limited to, any past amount owed to suppliers, credit card and lien debts, open orders with a deposit that have not been filled (if the money was taken for the order before the product was delivered) — really any amount of negative money, money owed, money spent that the company didn’t have. If you take the assets and subtract the total amount of the liabilities, you get what’s called ‘book value’. Book value doesn’t measure potential or experience, it measures the current hard dollar value found on paper (or screen — since it is 2019).

To be honest, most guitar manufacturing companies probably have a pretty low book value — here’s why…

Take a look at boutique builders and small shops - most of their bottom line is designed to yield 35% over cost — that’s a pure profit after everything is paid. (It doesn’t mean they actually hit those numbers, it just means that’s what they are aiming for.) This amount is usually reinvested back into the business by pre-ordering materials, buying new equipment, or perhaps hiring a new employee, along with general business growth and maintenance. The tricky thing with a small business book value is the growth - you can’t grow your business unless you reinvest your profit in assets like wood and property or by getting a hefty sized loan, which inevitably lowers your book value because of added debt. (I won’t be diving into business growth in this editorial, but it’s a great topic!)

Same thing with the big guitar manufacturers, but they have a different type of investment plan. Big manufacturers might only yield 13% in pure profit; now, we’re talking about 13% of 60 million, so they aren’t doing badly. Their investment goals are more diverse, for the simple rule of safety. Diversity helps bigger manufactures, like Gibson and Fender, ride out any kind of ups and downs in the market, and it also allows them to borrow against their investment. These investments, whether it’s the purchase of another company, a licensing deal, or buying bulk materials, can quickly add to the ‘worth’ especially if a company is aiming to borrow money and not liquidate.

That brings me to ‘worth’. “Something is only worth what someone is willing to pay for it.” If you’ve ever held down a sales job, this was your motto. This saying is over-used, sounds manipulative and slimy, but it’s true!

It means all of the assets are seen with their potential. For example, let’s say you have all of the raw materials to make a guitar, they cost $250, it takes 20 hours of labor to complete (you pay yourself $25 per hour), and you usually sell a completed guitar for $1,500. That means the book value of those parts is $250, and the ‘potential worth’ is $1,500. With experienced labor and sales potential you can make that $250 material investment into a $750 profit! Trust me, it’s not that easy, or profitable, but it’s an example. Another example is, a piece of paper with Aroldis Chapman’s signature (the guy that holds the record for the fastest pitch in baseball); the book value of that piece of paper is five cents, but when you add Chapman’s signature it’s worth more, and has the potential of selling for $50.

Any artistic, one-of-a-kind, custom or creative industry is just like that. The book value is always much lower than the overall worth of the business, mostly because of the value placed on the quality of the craftsmanship reflected in the completed product. Brands that aline themselves with quality, and can abide long enough, will inevitably grow the worth of their business, regardless of the book value.

However, because the worth of a business takes into consideration the market potential, the worth of a business can drop significantly if there is a decrease in sales or orders. For example, if singer-songwriters are the new thing in music, and everyone wants a D-28 for Christmas, then B.C.Rich and other shredalicious companies feel the burn. Also, if there is a bad marketing choice, consumers aren’t happy with the quality of a product, or a bad deal is signed with a distributor, orders go down and… ta-da, so does the worth of the company.

A lot of big guitar manufacturers have suffered now-and-again from the ever changing music culture - the majority of consumers are looking for ‘relics’, something vintage, something with soft curves and mismatched aesthetics. Something that matches a tweed-covered amp, or a one-off head made out of an up-cycled lunchbox. Some companies are just too fucking metal for all that, or they’ve never invested into R&D, or they want to stay true to the niche they originally broke into.

Quality! It’s no secret that there have been some bumps in the road for many guitar manufacturers who move some, if not all, of their production over seas. Quality control is just different in different places: materials are different, people are different, processes are different - and if you are expecting and advertising the same outcome, shit gets bad real quick… because it’s not the same, it’s different. Once quality slips on a regular basis, say bye-bye to customers. Seems like quality has had it’s biggest ups and downs when companies change licensing deals; that’s hard on any line - to change the whole location and method of manufacturing! God bless those shops, but damn!

That being said, there isn’t much in assets if a company is manufacturing via licensing deals. Most of the production is performed in different shops, which are totally separate businesses - with separate assets and liabilities, that own their own tools and materials, and aren’t connected to the licensing brand, at all. Though, most larger manufacturers have enough weight to throw around and buy raw materials in bulk — meaning they’re sitting on $250,000 worth of wood and other materials/parts, pre-potential.

In addition to asset potential, we have to look at the name’s value — something must be said for last names used to build big brands, like Gibson, Fender, B.C.Rich, Jackson, Martin, Taylor… I could go on for days. It was these original individuals that founded the companies; they designed, they built, they networked, and their charisma built a culture. Most iconic brand start from seeds of an attitude, that then grow into an innovative approaches to the norm. But, when you detach the creator from the creation, the culture, the vibe, the experience and motivation, the passion only lasts for another decade (at the most) - that’s if the successor(s) believed in the vision and was able to feed that culture. You see this all the time in the guitar manufacturing industry. CEOs — who’ve never built a guitar, never sat for days staring at a piece of wood trying to figure out what it wants to be, never sat with a client and helped them figure out the science and engineering behind the guitar they fell in love with — swoop in and think they can ‘create’ a vibe, think they can monetarily manufacture a culture, and the guitars will sell themselves… it never lasts, and it definitely never grows the business. The loss of passion, culture and vibe, is something that can cost a company everything.

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What would I get for 1.2 million? Let’s see…

Most of this unnamed guitar manufacturer’s current production is overseas. While their custom instruments are still made in the US, the shop that builds them has a bad reputation from loud-mouthed ex-employees and customer reviews complaining of arrogant and belittling communications from the builders. (A shop I’d either cut ties with, or have a very earnest conversation with regarding the future expectations of customer care and employee contracts.)

So, when I lay that wad of cash on the table, I’ll get some material and parts, but mostly licensing deals, what’s left of sales agreements, and intellectual property like trademarks and patented designs. I’m mostly buying the potential. Actually, it would be more like buying the past potential - because if I wanted to make more out of an iconic guitar manufacturing company, I’d have to start backward in order to move forward, hoping people would forget about the last two decades of troubled waters, bad customer service and hit-or-miss quality control; I would then have to transform the original brand into today’s music scene. What would this look like? Reintroducing the original founder to the public, connecting with past industry friends/brands/leaders and connecting their brands with the company, connecting original designs with today’s sound and look, diving deep into the metamorphosis of the popular music genre and helping that grow and prosper — it’s growth and healing all balled into one. Having a firm grasp on what made a company marketable to begin with usually has nothing to do with marketing.

Rebuilding a brand that has more potential than material takes respect, humility, and ingenuity. If I had $1.2 million dollars…

About the Author

Chelsea Clark

Chelsea has been a guitar repairer since 2005. She is also a small business consultant. She has had other articles published in Fretboard Journal,, Vintage Guitar Magazine, and Guitar Player Magazine.