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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.

[caption id="attachment_20411" align="alignleft" width="108" caption="Jean Charles Boisset"][/caption]

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.

"If you're set on retiring to the beach, it will send you in one direction, and if not, it will send you to another," Mr. Costello said.

The three founders -- Dan Kosta, Michael Browne and Mr. Costello -- wanted to stay with the business, so they looked for an investor with a similar philosophy and ability to work together.

[caption id="attachment_20416" align="alignright" width="108" caption="Lesley Berglund"][/caption]

Cash flow is a monumental metric of enterprise value, and building or rebuilding the value of a wine company can be as basic as examining how employees interact with the people who are buying or might want to buy the wine, according to panelist Lesley Berglund, co-founder and chairman of wine direct sales school WISE Academy and chief executive officer of the Aged Cabernet Trust.

"What you need to do for an organization's health is the same as if you are selling it or turning it around," she said.

For 15 years she has been examining the health of wine direct-marketing operations, starting with competitors she acquired as part of Napa-based catalog and Internet wine retailer Ambrosia and The Wine Tasting Network, and then as a consultant after the sale of the business to 1-800-Flowers.

Rather than fomenting “short-timer’s disease,” preparing a company to sell by examining each aspect as if it were a division with profit-and-loss figures prepares a company to survive long term, according to Ms. Berglund, another conference panelist. The financials for the business are re-evaluated based on those metrics.

Direct sales are a key profit center at a time of bottlenecked or sluggish trade channels, but not every direct-sales method – Internet, tasting room, events – may be adding as much value to the business as possible, she said.

“We’re almost a victim of our own success, because we have visitors coming to wineries and wanting to be put on our mailing lists,” she said. “But now many wineries are doing consumer-direct and the economy is softening, but we do not have the professional rigor of direct-marketing principles in place.”

Those principles include building customer lists, and the best way for vintners to do that is to become rigorous in collecting contact information from already eager customers.

“The rigors of direct marketing are ABC: always be collecting,” she said. “From there you do direct-marketing programs and measure, measure, measure.”

Part of the coursework for the WISE Academy, started a year ago to offer certified training of winery direct sales staff, is to survey existing conditions. In secret shopper surveys already conducted, the results reveal a lot of low-hanging fruit for improved direct sales, according to Ms. Berglund.

The students grade tasting rooms on a “triple score,” whether staff asks for orders, pitches the club during the conversation and captures information regardless of a sale.

“Seventy percent of tasting room professionals out there do not ask for the order,” she said. “Many are afraid of it and do not think it is their job.”

More than 85 percent don’t mention the club, and in excess of 90 percent don’t capture contact data, the surveys found.

The WISE Academy students recently called 50 wineries to examine inbound sales. The caller told the person answering the phone about interest in buying the wine then asked some questions about the winery. Seventy-six percent didn’t ask for an order, according to Ms. Berglund.

The point is that the winery proprietor should be training the staff to leave every consumer with a sound-bite story about the wine and winery they can pass on to their friends and make every contact a sales opportunity, she said.

That way, the business is enhanced by the founder or owner’s presence but can survive when they’re not around. She pointed to Duckhorn Wine Co. and Stag’s Leap Wine Cellars as examples of such a transition.

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Rounding out the discussion panel will be Jim Harris, speaking on aspects that make a wine business appealing for acquisition and how to position the operation for that.

He is president of Huneeus Vintners, the wine portfolio of Agustin Huneeus’ family. The company acquired Quintessa in Rutherford and Veramonte in Chile, launched Napa Valley brands Illumination and Faust, and become a partner in 8-year-old Long Shadows Vintners in Washington’s Columbia Valley and Flowers Vineyards & Winery on the Sonoma Coast.

Huneeus Vintners last year made a significant investment in Walt and Joan Flowers’ operation, maker of luxury-tier pinot noir and chardonnay.

AMPLIFICATION, April 19, 2010: Lesley Burglund pointed to Duckhorn Wine Co. and Stag's Leap Wine Cellars as examples of successful ownership transitions helped by staff members' learning how to effectively communicate the brand story.