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02.11.2013  
 

Wine Investors Think Globally

Panelists reveal process behind international acquisitions of California wineries

 
by Paul Franson
 
 
winery ownership
 
Buyers from several countries have snapped up winery and vineyard property in prime California winegrowing regions during recent years.
Sacramento, Calif.—The acquisitions of high-end wineries such as Sloan Estate, Livingston-Moffet (now Dana Estates) and Bialla (now Ripe Peak Winery) by Asian investors; Australian Accolade Wines’ purchase of Geyser Peak; Boisset Family Estate’s acquisition of Raymond, DeLoach, Buena Vista, Lockwood and Lyeth Estate, and Concha y Toro’s purchase of Fetzer highlight the increasing globalization of the wine industry.

At the recent Unified Wine & Grape Symposium, Jeff Menashe of Demeter Group moderated a panel about foreign investments in the U.S. wine industry, sharing his belief that there are more acquisitions to come—particularly in high-value North Coast winegrowing regions. The big prize everyone is anticipating, he said, is an acquisition of Treasury Wine Estates, including the large Beringer brand.

“It’s clear why investors from elsewhere are interested: The United States is the largest and one of the fastest-growing markets. To be a player worldwide, you have to participate in the U.S.”

And while bottled imports represent 25% of the market, they’re concentrated at the lower-volume categories, not at the top, where  California wines sell. “Of the top ten U.S. brands, only Yellow Tail is an import,” Menashe said.

Why Accolade bought Geyser Peak
Accolade’s Tim Matz discussed that company’s activities in the United States—notably the purchase of Geyser Peak Winery, one of the casualties of the Ascentia Wines meltdown.

Accolade was created when CHAMP Private Equity partners bought the Australian, English and South African parts of Constellation Wines. Matz said Accolade is the fifth-largest wine company in the world and sells 35 million cases annually—partly by owning giant U.K. distributor Mathew Clark. Matz claims Accolade is the largest exporter of California wine to the U.K. with the Eco Falls brand, a label not sold domestically.

Accolade also sells Hardy from Australia and Kumal from South Africa.

“They acquired Geyser Peak to get U.S. infrastructure: sales, distribution and back-office functions like accounting and logistics.”

Matz says he was the only employee in the U.S. on May 31, then became one of 85 the next day, when Accolade acquired Geyser Peak.

Acknowledging that Geyser Peak has suffered under recent owners, Matz said it has strong recognition in the industry and among consumers, who seem to be welcoming it back.

Accolade intends to use this channel to distribute its Australian and South African wines in the U.S., though he said they need rebuilding and even Yellow Tail is showing signs of distress.

In addition, Accolade exports the equivalent of 7 million cases of bulk wine to the U.S., and it has the potential to exploit duty drawbacks that could reduce import taxes because it exports wine, too.

Accolade acquired Atlas Peak and XYZin brands along with Geyser Peak, and Matz said the company is looking for acquisitions to build its operations here. “We don’t have wines from Argentina, Chile and New Zealand,” he noted.

The company is also looking at innovation; Mathew Clark sells flavored wine brand Stone, which is popular in the U.K., and those wines are strong candidates to bring to the U.S.

Matz noted that Accolade had options other than Geyser Peak for gaining strength in the U.S. market. It could have partnered with an importer or sales and marketing organization—or even started from scratch. However, its owner is a private equity company, “and they want a quick turnaround; the others were too slow,” Martz said.

Geyser Peak was a good match as it had an existing national distribution network with wholesalers Southern Wine & Spirits and Glazer, had good sales coverage and didn’t compete with the Australian brands. “We also didn’t have to throw people out on the streets,” and could retain most staff.

A buyer from Canada
Another foreign investor won’t seem very foreign to Americans who tend to think of Canada as almost another U.S. state: British Columbia’s Quails’ Gate Winery bought Valley of the Moon Winery and vineyard and the Lake Sonoma brand from Korbel.

The company is already in the wine business. Owner Tony Stewart says the winery in the Okanagan Valley sells about 50,000 cases per year (mostly Pinot Noir and Chardonnay).

British Columbia allows wineries to have tourist attractions like restaurants, and Quails’ Gate has one. The winery gets 150,000 visitors per year, selling 25% of its output at the winery.

Stewart says the acquisition was inspired by a generation transition looming, and he and his siblings decided on a corporate structure and acquisitions as a way to deal with it.

He partnered with investor and vintner Dan Zepponi, a former wine industry executive (and brother of prominent mergers and acquisitions advisor Mario Zepponi). They first set up a corporate structure and created the Plume brand to market Cabernet Sauvignon from Napa Valley fruit.

Stewart admits that getting into the business was challenging. “This industry doesn’t need any more regulations,” he deadpanned, and British Columbia has the lowest business taxes in North America (nothing anyone would claim about California). He couldn’t help noting that as BC dropped its taxes, investment rose.

The company is now looking at other opportunities in Napa Valley. “We’d like to find a partner looking for a gradual transition out,” Stewart said.

The company is rebranding Valley of the Moon under the name Madrone and looking for a Napa presence. 

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