North Bay Business Journal — http://www.northbaybusinessjournal.com
Trends for 2013: Wine: Grape supply to drive wine M&A in 2013
Jeff Quackenbush, Business Journal Staff Reporter
Monday, December 31, 2012, 6:06 am
Categories: Agriculture, Food and Beverage, Industry News, North Bay News, Wine Industry Business Journal | No Comments
Brisk mergers-and-acquisitions activity for North Coast wineries, vineyards and brands in 2012 is expected to continue into 2013, even if the estimated huge size of the recent harvest moderates supply pricing underlying a number of the deals, according to deal brokers.
Mergers-and-acquisitions activity for North Coast wineries and vineyards in 2012 was as significant as as it was prior to when financial markets crisis took hold in the summer and fall of 2008, according to Robert Nicholson of International Wine Associates, a Healdsburg-based M&A and management consulting firm.
Some producers, wanting to better-guarantee access to choice grapes for growing wine programs or access to key markets, are acquiring vineyards or wine companies. In the past several years, brand-related deals tended to dominate North Coast transactions.
“We will see more acquisitions from producers, versus letting growers go through the cost of developing and farming,” Mr. Nicholson said.
Producers can pay higher prices than investors looking for cash flow from grape sales because of the incremental margin wine companies can squeeze out of each ton of grapes as inventory moves from vineyard to consumer, he noted. And that shift in demand for such properties likely will accelerate as property prices firm up.
Three of the most active buyers of North Coast wine properties by far this year have been Healdsburg-based Foley Family Wines, Santa Rosa-based Jackson Family Wines and Madera-based E&J Gallo, according to Mario Zepponi of Santa Rosa-based wine industry transactions firm Zepponi & Company.
“Vineyards and grape sourcing will continue to be a hot button,” Mr. Zepponi said. “Real estate played the most active part in M&A activity.”
Foley acquired a 200-acre vineyard in Sonoma County’s Los Carneros appellation plus four brands at estates in Sonoma’s Alexander Valley, Napa Valley and Lake County’s Guenoc Valley. Jackson affiliates purchased 460 acres of vines in Los Carneros as well as Russian River and Alexander valleys plus land suitable for more than 100 acres of vines on the Mendocino County side of the Pine Mountain-Cloverdale Peak appellation. In the company’s first foray into Lake County, Gallo bought 800 acres of vines on the 2,000-acre Snows Lake property.
Other M&A players active in past years are becoming more active, deal brokers said. Publicly owned companies returned to buying mode after four years of sitting on the sidelines with Constellation Brands’ $160 million acquisition of the Mark West pinot noir–focused brand from Graton-based Purple Wine. Among public companies rumored to be scouting for deals are Australia-based Treasury Wine Estates, which has a number of North Coast brands and the subject of speculation as an acquisition target, and Kentucky-based Brown-Forman Corp., owner of Sonoma-Cutrer.
And foreign buyers looking for greater distribution in the giant existing and potential U.S. wine market are looking for North Coast investments. Following Concha y Toro’s big play for Fetzer last year, Accolade Wines of Australia picked up Geyser Peak and other Ascentia Wines Estates brands in the middle of 2012.
Outside of some North Coast vineyard estate purchases by high-net-worth foreign nationals, the “lifestyle” market remains dormant, according to Mr. Zepponi. When these buyers return to the market in force, he foresees a surge in demand similar to what drove up grape prices in late 2011 and early 2012.
“I really do believe that for a lot of the supply for lifestyle buyers there is pent-up demand, but they are not comfortable paying millions of dollars for something that is not really a commercial enterprise,” he said. So some sellers of vineyard estates are considering parceling their properties to allow sales of commercial vineyards separate from homes on the property, if zoning allows for such subdivisions.
On the wine supply side, many North Coast producers late this year were committing to buy from the 2013 crop as much as they did from the 2012 harvest, according to Brian Clements, a partner in Novato-based Turrentine Brokerage. It’s not the “panic buying” that floated grape and bulk-wine prices ever higher from late 2011 through six months ago.
The larger 2012 North Coast crop, the largest in several years and following two straight small harvests, is moderating bulk-wine pricing, particularly for pinot noir and chardonnay, going into the first quarter of 2013, but growers will still make a profit, according to Mr. Clements.
“There’s not an overabundance of bulk wine; it still appears short,” he said of excesses North Coast producers have on the market. The general sentiment among winemakers about the quality of the 2012 crop and moderate sales increases for higher-end wines through the closing months of the year are helping to move that inventory, he said.
This all depends on the size of the next crop and how well luxury wines continue to sell. “If we have a short crop in 2013 and the economy stays what it is, you can put your seatbelts back on,” Mr. Clements said.
Link to article: http://www.northbaybusinessjournal.com/66157/trends-for-2013-wine/
© 1988–2015 North Bay Business Journal. Copyright policy: http://www.northbaybusinessjournal.com/contact/copyright-policy/.