Robert Nicholson is president of Healdsburg-based mergers-and-acquisitions sell-side advisory International Wine Associates.
He will be part of the mergers and acqusitions panel at the Business Journal’s Wine Industry Conference on April 28. He talked with the Journal about the trajectory of West Coast deals recently and what they mean.
What do recent acquisitions tell us about wine M&A?
ROBERT NICHOLSON: It is more buoyant than it has been at any time in the last 15 years. And the reason for that is that the wine market is strong and growing in the U.S.A. We’re now the largest wine market in the world — 335 million cases, up 2 percent-plus annually and increasing at a higher percentage at the higher price points.
The reason M&A is as strong as it is that medium-tier companies and large companies are trying to find ways to improve their position. For example, if you have been a company that is focused on the below-$10 in the past — that’s your sweet spot historically — then where you want to be in the future is the area that is growing the most. And that would be above $10 retail and in certain cases above $15.
If you have focused your business heretofore at under $10, you need to find a way to get into the above-$10 category. Sometimes, it’s easier to do that through acquisition that to create your own brand organically. Nothing is easy.
Do you see examples of that in recent acquisitions?
NICHOLSON: Absolutely, I think it’s very clear, certainly with the transactions that have happened so far this year, The Prisoner and Chalone, and many of the transactions that happened last year. But not necessarily are all companies pursuing the same strategy.
Some are pursuing the brand-only strategy, where the asset base is smaller or nonexistent and they’re using existing assets as homes for their increased needs of production capacity. They’re not buying vineyards. [Constellation Brands’ purchase of Huneuus Vintners’] The Prisoner is an example of that.
An example of the other type of acquisition is [E&J] Gallo, where they’ve been buying businesses with assets — brands with assets. [Gallo’s purchase of] Talbott [Vineyards] would be an example of that. Very big asset base: 525 acres of vineyards, sizable growing brand and a winery.
What types of buyers are looking for deals in the North Coast and elsewhere?
NICHOLSON: There are a number of kinds of buyers. There are the big, large corporates, the Constellations, the Gallos, The Wine Groups of the world. They are examples of transactions done in the last year in the North Coast.
Also there are middle-tier wine companies from in the area and out of the area. Then there are some private-equity fund activity and some high-net-worth individual activity. There is a little bit of everything.
Has that pool of prospective buyers changed from other years?
NICHOLSON: Still there are the large companies in the wine industry bolstering their positions through acquisition. Other small companies are making acquisitions as a way of getting into a new type of business, for example, acquiring a Russian River or Napa Valley vineyard or winery because they may not have been heretofore into pinot noir or cabernet. There is not necessarily a larger group of different buyers.