Wine business appetite for acquisition tops pre-pandemic pace
News of the acquisitions last week of Sebastopol’s Ace Cider and Napa Valley’s Frank Family Vineyards are part of a string of deals this year that industry experts say point to a reawakening of the North Coast wine business and even more such activity next year.
On Nov. 15, Vintage Wine Estates announced that it was buying California Cider Company, maker of the 1 million-case-a-year Ace brand, following several transactions since the Santa Rosa company became publicly traded earlier this year. Then on Nov. 17, Treasury Wine Estates said it inked a deal with Frank Family Vineyards to purchase the inventory for the 160,000-case-a-year brand, known for its luxury-tier chardonnay, and certain assets for $315 million.
While the stated reasons for those deals differed — diversification and market expansion for Vintage, movement into more premium chardonnay wines for Treasury — they share commonalities seen in other deal-making completed and pending, say seasoned brokers of such transactions.
For one, there is a lot of capital looking for investments with solid returns.
“The cash available is still extraordinary,” said Robert Nicholson, president of International Wine Associates, a mergers-and-acquisitions advisory for the wine and spirits industries.
Two big pools of such capital for M&A deals are billionaires and private-equity firms. Bloomberg estimated that over $5 trillion in portfolio wealth is held by U.S. billionaires. And private-equity firms had amassed $1.6 trillion in investment funds — commonly called “dry powder” — as of the end of last year, up 133% from $685 billion in 2014, according to alternative-asset management analytics firm Preqin.
“We’re seeing increased buyer interest, especially from strategics, especially foreign and (private equity) buyers,” said Ian Malone, a beverage industry specialist in Aspect Consumer Partners’s Napa Valley office. Strategic buyers are those that may be looking to pick up a brand or labels that fit marketing or growth gaps in their portfolios.
“There are far more PE firms active in food than the wine industry, but we have seen increased interest in the wine category,” Malone said, referring to private-equity investors.
That interest is credited partly to PE involvement in the rise of a 45-year-old Napa Valley-based collection of premium and luxury wines now known as The Duckhorn Portfolio. GI Partners acquired Duckhorn Wine Company from the family in 2007 and backed the founders’ investments in the brands, pouring in more than $60 million into hundreds of acres of vineyards and construction of wineries.
In 2016, GI sold Duckhorn to San Francisco-based TSG Consumer Partners, reportedly for about $600 million, and Duckhorn two years later acquired luxury Sonoma County pinot noir brand Kosta Browne. Duckhorn held an initial public offering of 20 million shares of stock in March, raising about $300 million. TSG owned about three-quarters of Duckhorn’s stock when it went public, but pared that back to less than two-thirds in October amid a follow-up offering of 13.8 million shares.
While reporting its fiscal fourth-quarter financial results, Duckhorn CEO Alex Ryan said that “creative M&A opportunities” is a path for “sustainable, profitable growth” in 2022 in beyond, he said during a conference call Oct. 4.
“We will be judicious with respect to our capital allocation,” Ryan said.
Another key PE move that touched the North Coast wine business this year Sycamore Partners Management’s purchase in October of Washington state-based Ste. Michelle Wine Estates, a $1.2 billion deal that included local brands such as Stag’s Leap Wine Cellars and Patz & Hall.
Banner year of deals
That deal was among a considerable string of transactions this year.
“I think that we're seeing more transactions in 2021 than in any year since 2017,” Nicholson said.
There have been a dozen sizable wine business M&A deals his Healdsburg-based firm has tracked so far this year, compared with eight last year, seven in 2019, 11 in 2018 and 14 in 2017. But the total deal value so far in 2021 has been “very high,” at $3 billion to $3.5 billion, Nicholson said.
But the 2021 deal value tally is skewed by three major transactions, including the one for Ste. Michelle, he said.
Constellation Brands sold 30-plus lower-priced brands to E. & J. Gallo Winery for $810 million. Napa-based Delicato Family Wines bought Sonoma County’s Francis Ford Coppola and Virginia Dare wineries in a deal estimated to be worth over a half-billion dollars.
The outlook for wine industry M&A in 2022 is robust, as deals that were in progress and set to close were shelved during the economic uncertainty and travel restrictions of the coronavirus pandemic, according to Mario Zepponi, a principal of Santa Rosa-based M&A consultancy Zepponi & Company.
