How Much Is your Winery Worth? OR
Thinking About Selling Your Winery?
by Ray Chadwick
If it is time to sell your winery, understanding and maximizing your winery’s value and properly managing the sale process can be complicated. There are many factors that affect these calculations, and they all begin with a simple question:
What do you hope to achieve by selling your winery?
The answer to that question depends, to a large extent, on your reasons for selling. Some winery owners started their businesses thirty-plus years ago and are ready to retire. Some have children who have their own careers and live in other parts of the country. For others, inheritance taxes pose a problem. Others need to sell as a result of the economic downturn or the inability to convince distributors to take an interest in their brands. And still others may be more interested in knowing the value of their businesses, so they can take that into account in future plans.
If, like most people, you are interested in the highest possible price, then it is important to understand the other side of the sales equation. For every seller, there must be at least one buyer. And in the wine business, there are usually three types of potential buyers: strategic buyers, financial buyers and individuals.
A strategic buyer is one who is already in the wine business. Strategic buyers have been involved in most of the large wine transactions that have occurred during the last two decades, as well as a number of the small to medium transactions.
Strategic wine buyers are usually able to pay the most because they have synergies. They often look to reduce overheads and production costs, and to drive the business using their sales and marketing expertise as well as their distributor clout. They are often looking for brands with dynamic growth potential as well as brands that fill a niche in their overall portfolio, from either a geographic or grape variety perspective.
Strategic buyers will often want to keep the savings that result from synergies to themselves. In response, smart sellers will try to get the buyers to share those savings by paying a higher price for the business.
The most common measure of valuing a winery for the strategic buyer is a multiple of LTM EBITDA (last twelve months of earnings before interest, taxes, depreciation and amortization), although they also often look at other factors such as cash flow or economic profit.
Historically, the average selling price for wineries has been approximately 12 times LTM EBITDA, although large and more attractive assets have fetched multiples of 17 times and even higher. Since the economic downturn in 2008, multiples have declined to the mid to high single digit range, particularly for less premium assets.
Among strategic buyers, Constellation has been the most active, having acquired Franciscan, Ravenswood, Rex Goliath, BRL Hardy, Robert Mondavi, Vincor and others. Their last major acquisition was Beam Wine Estates (Clos du Bois and other brands) in 2007. Since then Constellation has sold off a large share of their Australian and United Kingdom wine businesses, but they continue to make selective acquisitions as well, including Mark West in 2012.
Other active strategic buyers include Gallo (Barefoot Cellars, Mirassou, Louis Martini, Edna Valley Vineyards, Columbia), Foley Family Wines (Firestone, Sebastiani, Chalk Hill, Lancaster Estate), Jackson Family Wines, The Wine Group, Huneeus Vintners and Crimson Wine Group.
The large distilled spirits companies (Diageo, Pernod Ricard, Beam and Brown-Forman) have been acquisitive in the past. More recently, these companies have either sold off their wine businesses or signaled that they are unlikely to acquire more. This is likely due to the cyclical, low return and cash intensive nature of the wine business.
There are also a number of strategic buyers from outside the United States, including Vina Concha y Toro (Chile), Boisset (France), and The Hess Collection (Switzerland). Treasury Wine Estates (Australia) has recently signaled that they are open to making further acquisitions.
China Foods Ltd., which already owns wineries in France and Chile, has just recently announced that the company will purchase two or three wineries in the United States and Australia within the next two years.
Winery founders who sell their businesses to strategic buyers often have regrets over time. Sometimes they want to stay involved with the business but find it difficult to adjust to the corporate culture of the new owner. They can also find it difficult to be in a position where they are no longer calling the shots, or when new owners reduce headcount or change product style, packaging and even brand strategy. This can be particularly difficult and painful when the founder’s name is on the business or brand.
Financial buyers are typically private equity firms looking to buy a winery or group of wineries and eventually sell them for a profit. There have also been financial buyers from other businesses who buy wineries with a view towards holding them for the long term.
Private equity firms that acquire wineries typically are not able to generate the synergies and cost savings that strategic buyers can exact from a business, which may mean that they can’t afford to pay as much. On the other hand, they typically put up as little cash as possible and instead borrow as much as possible to finance the business. Their goal is to re-sell the business and make a large profit five to seven years later, although some firms have a longer-term outlook.
Private equity buyers are typically most interested in acquiring businesses that have strong management teams, high growth potential and predictable cash flows. Senior management often receives equity grants, which can provide strong incentives to drive business results and may result in lucrative payouts.
In 1996 Texas Pacific Group purchased Beringer from Nestle, changing the focus from economic profit and return on invested capital to more short-term-oriented metrics such as volume growth, margins and cash flow. They sold the business to Foster’s Brewing Group five years later.
More recently, GI Partners purchased Duckhorn Wine Company in 2007 and Australia-based Champ Private Equity purchased wine assets from Constellation in 2008, renaming them Accolade Wines. Champ then purchased Ascentia Wine Estates (Geyser Peak) from another private equity firm (GESD Capital Partners) in 2012, merging those wine assets into Accolade.
The Vincraft Group is another capital fund that purchased Kosta Browne in 2009 and added Gary Ferrell in 2011. Winebow, a leading wine importer and distributor, was initially sold to a Los Angeles-based private equity firm, Freeman Spogli & Co., who in turn sold the business to another private equity firm, Dallas-based Brazos Private Equity Partners, in 2012.
Another type of financial buyer is one that is in a different, but related business that may sell products through similar channels. Fiji Water (Roll Global), which already had a large sales force calling on restaurants, hotels and retailers, purchased Justin Vineyards in 2009. Roll Global also has large agricultural holdings and has extensive farming experience, which may help control costs and improve quality at Justin.
Leucadia National Corporation, which has a broad range of holdings, first acquired Pine Ridge in 1991, and their wine division – Crimson Wine Group – has since added Archery Summit, Chamisal Vineyards and, most recently, Seghesio Family Vineyards. Crimson was spun off early in 2013 and is now a free-standing publicly traded company.
Bright Food Group, one of China’s largest food producers, purchased a 70 percent stake in Diva Bordeaux, a large independent wine broker, in 2012. Bright has an extensive distribution network in China and may be looking to expand their holdings in wine.
Individual buyers typically have a high net worth and are often interested in wine from a lifestyle perspective. They come from all over the world and are usually more interested in how the property looks and feels rather than what the financial statements tell about the business.
A recent example would be Brad Pitt and Angelina Jolie, who have purchased a winery estate in the south of France.
For many winery owners these may be the ideal buyers. This is because many wineries do not produce the level of income that would allow a new owner to secure financing to cover the fair market value of the assets that are being purchased. For these buyers, the rewards of owning a winery are not necessarily financial, and they may be prepared to simply write a check if they like the property and the wine.
If the goal is to find an individual buyer, the choice of a broker to represent the winery seller is particularly important.
The Sale Process:
Choosing professional advisors experienced in mergers and acquisitions is essential.
For larger wineries that are hoping to generate a robust auction process, it may be wise to consider the larger New York-based investment banks that have departments specializing in merger and acquisition activity.
There are also smaller to medium-sized boutique investment banking options based in San Francisco and the North Bay. Some of these firms specialize in winery and vineyard transactions and are well connected to potential buyers.
On a more local level, some Wine Country real estate firms have agents with experience selling wineries and vineyards as well.
In choosing a firm or advisor to help you manage the sale, you will want to ask them a series of questions. I suggest these:
How much experience do you have selling wineries?
What do you think my winery is worth, and why?
Have any sellers you have represented in the past initiated legal proceedings against you?
Can you provide references from sellers you have worked with in the past?
What are you going to charge? Are there fixed costs you will charge regardless of the outcome?
At the same time, there are a few questions you should ask yourself, just to make sure that you get the result that you want:
Do you need an employee retention plan during the sale process?
What can you do to minimize taxes?
Would you be willing to stay on if the buyer wants you to?
Are there any alternatives to an outright sale that you might want to consider?
Thinking about and understanding your goals, choosing the right professional advisors, and being realistic and patient are critical to the successful sale of your business. Armed with these answers, and with a clear idea of your goals, you will be prepared to fully explore the process of selling your winery.