Diageo also sells Moon Mountain, Rutherford vineyards as it divestsNOVATO -- One of the results of Diageo Chateau & Estate Wines' recent sales of wine assets is providing corporate alcoholic beverage brand creator Winery Exchange with a line of its own products.

Winery Exchange has created dozens of wine, beer and spirits brands for grocers, restaurants, retailers and other clients but earlier this year the Novato-based company made its first brand acquisition, picking up the Echelon Vineyards brand, launched in 1998, from Diageo for an undisclosed amount.

"It's the first of a portfolio of established brands we're calling the national brands division," said Chip Block, senior vice president of sales.

Winery Exchange has been considering an expansion into national brands, and has to some extent with beer.

"We like Echelon, because it is evenly distributed," he said. "There's a heartbeat. There's a following."

Production of the brand, which retails for about $10 a bottle, currently is 68,000 cases a year. With a formal relaunch of the brand this summer, Winery Exchange looks to bring the brand back to the essence it had at its heyday, Mr. Block said. Production was above 100,000 cases a year from 2000 through 2008, reaching as high as 170,000 cases.

Now is a good time to get into acquisition of established brands, Mr. Block said.

"There's going to be wines available now, more so than in years past," he said. "With our current production, it's a good time to tap into the fact we can do good quality wines at a good price."

The company produces nearly 300 spirits, beer and wine products from contracted facilities in 22 countries on five continents for retailers such as Supervalu, Kroger, Costco, 7-Eleven, Delhaize Group, Tesco, Fresh & Easy, Cost Plus, H-E-B and Sainsbury. The brands have garnered hundreds of medals in competitions, including three gold medals and 12 silver medals in the 2011 San Francisco Chronicle Wine Competition.

Winery Exchange for now plans to keep Echelon production and distribution the same, Mr. Block said. Diageo winemaker Tom Westberg has produced Echelon from a winery in San Miguel with grapes from the Central Coast and Clarksburg in the Sacramento Valley.

In addition to a $269 million sale-leaseback of North Bay vineyards and wineries last year, Diageo recently sold two Washington brands as well as two significant vineyards in Sonoma and Napa counties.

A company spokeswoman said all these sales are the result of a review of the wine division. Diageo's net wine revenue, the company's smallest beverage category, decreased 7 percent in North America in the second half of 2010 from a year before because of heavy discounting, increased 18 percent in the United Kingdom and were down 5 percent overall.

[caption id="attachment_30252" align="alignleft" width="108" caption="James C. Momtazee purchased Moon Mountain Vineyard from Diageo in January. (KKR photo)"][/caption]

On Jan. 21, Diageo sold Moon Mountain Vineyard property in Sonoma Valley, which has 76 acres of certified-organic vines, to James C. Momtazee, a partner in Menlo Park-based private-equity firm Kohlberg Kravis Roberts & Co., for an undisclosed sum, according to Sonoma County public records.

On Jan. 29, Diageo sold 90 acres on Skellenger Road near Rutherford in Napa Valley with vines and a home site to an affiliate of Napa-based Silverado Premium Properties, a major operator of North Coast and Central Coast vineyards, according to Napa County public documents. The price was not disclosed.

Mergers and acquisitions activity continues to be strong for wine and vineyard assets, most of which aren't or weren't in default of part of a bankruptcy, according to Joe Ciatti, Matt Franklin and Mario Zepponi of transaction consulting firm in Santa Rosa. Zepponi & Company brokered $110 million in deals last year, and this year's pace of $40 million closed so far could surpass that of last year.

"As large public companies optimize their portfolios, private wine companies that are well-capitalized will see this as a good time to buy brands as valuations are down and wine sales are up," Mr. Franklin said.

Diageo is the latest public company with a wine division to adjust its portfolio, following Brown-Forman's pending sale of Fetzer in Hopland and Foster's Group's planned demerger of Treasury Wine Estates this spring.

Smaller-scale sellers continue to be motivated by lender concerns, succession issues and "owner fatigue," but investment groups are playing a larger role, lifestyle buyers are returning and some interest is growing from buyers in China, elsewhere in Asia, South America and China, according to the Zepponi partners.

"This time last year, we had to pull people into deals," Mr. Zepponi said. "Now, there's a lot less uncertainty in the market. They may not know where it's going but they know if they jump in now they will not get burned."