The Business Journal's 2010 Wine Conference on Thursday will focus on strategies wineries can use to survive and thrive in what has been described as the worst market for high-end wine in two decades.
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The keynote speaker will be Jean-Charles Boisset, president of U.S. operations and vice president of operations in France for Boisset Family Estates. The family company was started in the Burgundy region of France in 1961, and he has been part of the organization for 20 years.
Two years ago the family business started shifting from spirits to focus on wine, although a grape-based vodka and an apple-based ice wine are produced.
In that time, the company has grown to become among the largest producers of pinot noir in several regions of France and made inroads to North America in recent years with the acquisition of DeLoach in Russian River Valley and Raymond in St. Helena.
Sold in 80 countries, the family's wines have also been on the forefront of alternative packaging, with aluminum and plastic wine bottles and a new 10-liter bag-in-a-wood-barrel restaurant and bar format for DeLoach.
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Despite the slowdown in mergers and acquisitions amid the crimp on credit, there is a substantial amount of money in play for wine businesses, according to John Fisher, managing director of Fisher & Company, a Palo Alto-based venture capital and investment banking firm, who will be on a conference panel.
"There's a tendency to think that we're in a dry spell," he said. "It's interesting to me over a quarter century of doing this that there is persistence in buyer interest, and that interest is very high."
The players change over time, from more foreign investment years ago to more private equity today, but a core group remains. Levels of complexity in the wine business challenge efforts over the years to come up with standard comparables in wine M&A, but wine business valuation is much different from that of businesses in other industries when the basics are considered, according to Mr. Fisher.
"If you only want a good conversation, you can talk all day about EBITDA, but if you want a real handle on value you need to look at some other things," he said, referring to the common deal comparable of multiples of earnings before interest, taxes, depreciation and amortization. "At the end of the day, you have to understand what I call 'value to whom.'"
Multiples of EBITDA may help buyers shed light on the important metric of cash flow, but operations with varying key assets such as vineyards may have similar multiples. Such a multiple also may not address extra spending on sales to support wholesale prices, yet a buyer may not value that effort because of existing sales staff and distribution relationships, according to Mr. Fisher.
"It's important to start with the proposition that your problems are not the acquirer's problems, and your costs are not the acquirer's costs," he said.
Mr. Fisher's career in corporate finance and investment banking started in the mid-1970s and has involved wine, spirits and beer industry deals since the early 1980s. Those deals include sales of Geyser Peak, Chateau St. Jean and Clos Du Bois in the 1980s; the Robert Mondavi Corp. initial public offering of stock in 1993; and most recently the recapitalization of Kistler Vineyards in early 2008.
Another important factor in the value of a wine business is the operation's story, largely made up of history, vineyard or appellation characteristics and winemaking acumen. Part of the skill of the M&A adviser is articulating the value of the story, according to Mr. Fisher.
"Depending on whom the buyer is, that story can be a very material part of the value in the authenticity of the brand," he said. "Sometimes, the buyer says the story hasn't worked for the family so why would it work for me."
The minority investment by Sonoma-based The Vincraft Group last year in pinot noir superstar Kosta Browne Winery highlights an increasingly used approach for owners to remain involved while fortifying their finances and expanding their management.
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Conference panelist Chris Costello oversees direct sales and business administration for Kosta Browne as managing director and was an instrumental go-between in the transaction that cashed out 19 mostly family-friend minority partners to bring in Vincraft. That process involved finding out what each investor wanted to accomplish and what the business was supposed to accomplish.