Firms expand in M&A, grape contracts, land use and IP
Securing enough North Coast grapes to supply growing consumer demand for wine is spurring growth in staffing and services among some North Bay law firms that serve the industry, all of which is helping the legal industry rebound after several years of static business.
Fine-wine sales took a significant hit following the economic crash of 2008, and two difficult North Coast winegrape harvests added further uncertainty about supply. But as the economic recession recedes and after what’s thought to be a banner harvest in 2012, a few visible trends are emerging and creating demand among law firms: a spike in mergers-and-acquisitions activity and an anticipated grape shortage that has wineries looking to secure their own supplies.
“A lot of it has to do with the fact that there’s a grape shortage, so what a lot of producers are doing is trying to lock up their grape supplies,” said Nick Donovan, a partner at Napa-based Gaw Van Male. The firm added six attorneys over the last six months across multiple practice areas in response to the demand, Mr. Donovan said. The wine practice has grown by about 40 percent over the year. The firm plans to hire two more attorneys directly out of law school in 2013, Mr. Donavan said, both in the wine practice.
With the grape shortage come acquisitions of either land or other wineries, and with the acquisitions comes a need for legal counsel in a number of areas, ranging from grape contracts, real estate holdings, succession and estate planning. Brand extension and trademark applications are also on the rise, attorneys said.
Another Napa law firm, Dickenson Peatman & Fogarty, has experienced similar growth, adding five attorneys over the last six months, with plans of possibly adding more in its Santa Rosa office in 2013. About 70 percent of the firm’s business is related to the wine industry, and the aforementioned trends are driving the growth, according to Scott Gerien, co-managing partner.
“At DP&F, some of the most significant business was probably driven by acquisitions of assets and property, as well as things like brand extension,” Mr. Gerien said. “For instance, our representation of Accolade in its acquisition of some of the Ascentia assets was a major project, and this type of deal also shows off additional subsequent work, such as license transfers with (Alcohol and Tobacco Tax and Trade Bureau) and (Alcohol Beverage Control), new employment agreements, land use work and trademark portfolio maintenance.”
Accolade Wines of Australia in June acquired wine brands Geyser Peak and XYZ Zin in Sonoma County and Atlas Peak in Napa Valley from Healdsburg-based Ascentia Wine Estates.
Regarding brand extension, a good gauge is the number of trademark applications filed for alcohol beverage products with the U.S. Patent and Trademark Office, Mr. Gerien said. Last year, 7,534 applications were filed with the office, compared with 7,081 in 2011 and 6,011 in 2010.
“So you can see that as anecdotal evidence related to the continued introduction of new brands,” he said.
The trend is not isolated to wine-specific legal practices, either, according to Wendy Whitson, managing director of Santa Rosa-based Anderson Zeigler Disharoon Gallagher & Gray, a full-service firm with numerous practice areas.
Ms. Whitson, who specializes in real estate transactions, said the recent spate of acquisitions underscores the importance of the wine industry in Sonoma and Napa counties, given its ability to impact law, finance and many other industries.
“I certainly have seen some expansion of business on the real estate end of the surge in M&A activity,” she said, noting that the firm doesn’t usually handle M&A but does work with what those deals affect. “There are a slew of real estate issues that flow from those kinds of deals.”
A key difference between now and waves of acquisitions in the past is that those seeking to purchase wine businesses are focused heavily on land and wineries, versus brands and strong revenue, both of which were the dominant factor pre-recession, according to Katherine Philippakis, partner and chair of Farella Braun + Martel’s wine industry practice in St. Helena.
“The ideal purchase pre-2008 was a brand with very few hard assets and good revenues, and now there’s a return to the concept that people want to buy hard assets,” she said. “They want to buy dirt.”
That’s changed for a number of reasons, particularly because Napa County wineries seeking to expand face strict land-use restrictions and zoning. Coupled with the perceived shortage of grapes, the land itself is now considered the best acquisition.
“There hasn’t been (much planting) activity in Napa for about 10 years,” said Ms. Philippakis of vineyard development. “If you can’t plant more, then the only way get more land is either through grape contracts or acquisitions.”
Such real estate transactions often have more complicated legal structures, depending on the deal.
“There’s typically more due diligence with the associated land and there can be tricky issues with zoning,” she said.
Increased activity in mergers and acquisitions returned a bit in 2011 and increased significantly in 2012, according to Mr. Donovan of Gaw Van Male.
“It has definitely affected the legal industry,” he said.
Another factor, according to Mr. Donovan, is that large banks are aggressively seeking qualified clients in the wine industry, perhaps hoping to cash in on the rebounding sales of wine. And with a strong harvest, that could generate further interest in acquisitions.
“There’s just been a general uptick in activity,” Mr. Donovan said. “It’s been good on the legal side of things.”
Correction: Katherine Philippakis is partner and chair of Farella Braun + Martel’s wine industry practice in St. Helena. An earlier version of this story misspelled her name.
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