Winery Executives Discuss Acquisitions
Fetzer/Concha y Toro, Jackson Family Wines, Foley and others share growth strategies
They heard presentations from prominent industry figures discussing mergers and acquisitions as well as the relatively new CEO of Fetzer Vineyards, which was acquired in 2011 by Chile’s Concha y Toro from whiskey producer Brown-Forman for $263 million.
For most attendees, it was the first exposure to Giancarlo Bianchetti, the Chilean who managed the acquisition of Fetzer Vineyards and now serves as its CEO as well as a director of Viña Concha y Toro.
Fetzer bottled 2.5 million cases of wine worth $112 million last year, according to Concha y Toro’s financial report released March 26. That’s up 31% by value and 38% by volume from 2011.
Fetzer accounted for 12% of C&T’s sales of $928 million and 8% of its 30 million cases of bottled wines. It produces wines that sell for $5 to more than $100 and exports 49% of its products to Europe. Twenty percent are sold in the U.S. and Canada.
In all, C&T has 26,000 acres of vineyards, 1,144 of them in California.
Bianchetti stated that Concha y Toro is 130 years old and is one of the few Chilean companies that focuses solely on wine.
The firm bought a winery in Argentina in 1996 before opening Almaviva, a joint venture with Mouton Rothschild of Bordeaux, France, in 1997. Yet to date, Fetzer remains its biggest acquisition.
Fetzer was approached in October 2010; C&T made its first offer in December, but was refused a chance to look over the property and books, according to Bianchetti, so it walked away. Brown-Forman relented, and the acquisition was completed in April.
Because most of Brown-Forman’s sales, marketing and financial efforts were handled in its Louisville, Ky., headquarters, Bianchetti negotiated a transition-services agreement for Brown-Forman to handle domestic sales for Fetzer Vineyards and other backroom operations while Fetzer established a sales team, applied for state licenses and negotiated with distributors.
It eventually hired about 50 sales and marketing employees.
Bianchetti said C&T is forced to export because of Chile’s small population. (Its GDP is the size of Alabama’s, he pointed out, while California’s GDP is equal to Russia’s.) “The United States is the largest wine market in the world, and California is in the heart of that market.”
He also says the company was motivated by the diversity of the U.S. market and the ability to innovate, pointing out the recent rise of sweet red blends and Muscat wines. “We can innovate in Chile, but we don’t have the market to support it,” he lamented.
As an example of innovation, he described a new single-serving plastic wine-glass-like package Fetzer recently introduced for sports venues and other applications. It sells for $4.99 and is now in 12 of the 80 major arenas in the United States. “We developed it in 10 months from idea to completion,” he said.
Bianchetti emphasizes that even though Fetzer Vineyards is owned by a Chilean wine company, it remains a California winery. He expects to acquire additional vineyards in the future but is focusing on digesting the new business this year.
He is also looking for additional international business opportunities, noting Concha y Toro’s success abroad. “California wine exports aren’t strong, and that creates opportunities,” he noted.
Buyers discuss their acquisitions
In the second panel, five of the wine industry’s most active buyers discussed why and what they were looking for. Two of the panelists represent primarily “asset” acquirers, two “brand,” and the other straddles both.
Jeff Wesselkamper is chief legal officer and executive vice president of 5 million case Jackson Family Wines and heads Jackson Family Investments, its real estate arm.
Wesselkamper acknowledged that the company had made many vineyard acquisitions in the past year and a half, including in Oregon, but admitted that many hadn’t b een reported, which seemed fine with him.
Jackson’s focus has been acquiring high-quality coastal vineyard land. The late “Jess Jackson told me that we are a real estate company that makes wine,” Wesselkamper said. The company has extensive holdings including wineries its acquired like Matanzas Creek Winery, Murphy-Goode, La Jota Vineyard Co., Freemark Abbey Winery, Arrowood Vineyards & Winery and Byron Vineyard & Winery as well as brands it has created.
Wesselkamper said that he’s seen a lot of big institutional buyers like CalPers and Entertainment Trust exiting vineyards of late, and large wine companies seeking to reduce assets. He also cited Silverado Partners as a savvy buyer that isn’t in that situation.
“There aren’t many asset-based buyers out there,” he said. “I see lots of sellers—a couple a week. But most aren’t right for us. We know very quickly if it makes sense for us,” Wesselkamper claimed, sometimes in minutes but surely in a day.
He added that he doesn’t see many sales completed and can identify at least one big reason: multimillion-dollar estate homes. “If you want to make a vineyard hard to sell, put a $4 million-$5 million home on it,” he said.
“We have multimillion-dollar homes coming out of our ears. The last thing we want is a homeowner complaining about the farming of the nearby vineyards. Build your home elsewhere, or at least on another parcel.”
Foley’s growth strategy
Bill Foley is another asset buyer. The executive chairman of Fidelity National Information Services got into the wine business by buying Lincourt Vineyards on California’s Central Coast in 1996 and has since grown to more than 1 million cases of production in California, Washington and New Zealand with brands such as Sebastiani, Kuleto, Chalk Hill and Firestone Vineyard.
Last year, he acquired several North Coast wineries, including Sawyer Cellars in Napa Valley, Langtry Estate in Lake County and Lancaster Estate in the Chalk Hill appellation of Sonoma County. Overall, he acquired four wineries, including vineyards and facilities, during 2012, one in New Zealand plus four vineyards.
Foley agrees about mansions: “Everything I look at has a mansion on it! It screws it up.”
However, he noted that today’s market is very different from that between 2008 and 2011. “Those were distress sales. The owners really needed to move out. I like to buy hard assets, and that was a great time for me.”
More recently, he said, the buyers seem to be mostly generational, like a founding couple that has no heirs in the business like Lancaster Estate. In other cases, brothers and sisters may disagree about business or some may not work in the winery and want to monetize the business, like Sawyer Cellars.
Foley likes to combine the back-end operations of the wineries he acquires, but leave the winemaking separate. “We want the winemaker to make the best wine he can for the winery’s price point. But I don’t want to lose money. We don’t want him to make wine that’s too good,” he added, getting a laugh from the industry crowd.
Winery Exchange, a brand buyer
In contrast to Jackson and Foley, Peter Byck of Winery Exchange is a brand buyer.
His family owns Paradise Ridge Winery in Sonoma County, but Byck co-founded Winery Exchange of Novato more than a decade ago. It now makes and markets private label and brands of wine, spirits and beer.
In recent years, the company has started acquiring and creating its own brands, including Echelon from Diageo, organic Our Daily Red, Orleans Hill and Ogio, which just entered the U.S. market after success in the U.K.
Byck well defined the goal of a brand-based acquirer: The transaction needs to make sense from the viewpoint of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), complement the winery’s portfolio and be consistent with its non-asset-based model.
By contrast, Foley said, “We run from EBITDA. We look for land that can produce great grapes!”
Byck admitted that the Echelon deal was challenging since they had to untangle it from Diageo’s sales and distribution. “The other Diageo brands were propping it up,” he said. As a result, “The brand lost scale and velocity.” Sales dropped, but Byck claimed that they’re building again, partly by focusing on the cycling community.
By contrast, he said organic Our Daily Red has been easier since his company was able to add sales and marketing the original owners didn’t have. “It’s also a brand leader and well differentiated being non-sulfited organic wine.”
The next speaker, Dennis Carroll, joined Derek Benham 13 years ago to create what became the Purple Wine Co. brand maker and Sonoma Wine Co. large-scale custom winery.
Carroll announced that he had left Purple Wine three weeks ago and is planning another wine venture.
Carroll earlier sold Blackstone to Constellation, and at Purple Wine built several brands, including the large Mark West Pinot Noir brand sold to Constellation Brands last year for $160 million. He also bought the Four Vines brand. “At Four Vines, we had a lot of synergy with our distribution network—and a motivated buyer.”
He said he tries to avoid acquisitions with real assets.
Vintage Wine Estates
Pat Roney is CEO of Vintage Wine Estates, partly owned by Leslie Rudd of Dean & DeLuca and Rudd Wines in Napa Valley. The company has acquired or taken a stake in several North Coast wine production facilities, brands and related companies in the past few years, including the large former Weibel custom winery in Hopland in Mendocino County as a future base of production.
Though Roney stated, “We’re more a brand- than asset-based winery, but do buy attractive assets” like the Weibel winery, now called Ray’s Station. “We aren’t afraid of asset deals, but we want an immediate opportunity. We don’t want to have to sell the real estate to profit from the deal.”
He says they look at cash return as well as the reputation of the brand. “We may reposition the brand and reduce costs by combining the sales and administration.” He likes strong brands like Cosentino, even though that winery went into bankruptcy. “It still has a strong base of fans.”
The company also prefers strong consumer-direct brands like Windsor, which pioneered the field, as well as private labels.
One recent acquisition does 150,000 cases annually of a private label with a major retailer, and Roney anticipates growing that business. Vintage Wine Estates also has brands in distribution and exports.