Ag Today September 28, 2016

Winery mergers and acquisitions expected to continue on California’s North Coast

BILL SWINDELL

THE PRESS DEMOCRAT | September 27, 2016, 7:27PM
NAPA — The North Coast wine industry will continue to experience mergers and acquisitions over the next few years as major wine companies seek to expand their presence in the premium American wine market, two top executives said Tuesday.

Roger Nabedian, general manager for the premium wine division at E&J Gallo Winery, and Hugh Reimers, president of Jackson Family Wines, said they expect more deals as the premium segment of the wine market continues its strong growth.

North Coast vintners have been successful in the marketplace with their premium offerings as the sales bottles priced $14 and above has increased 27 percent from 2011 to 2015 to a total of $4.1 billion.

“We joke we are a real estate company designed as a wine company,” Reimers said Tuesday at the annual Wine Industry Financial Symposium held at the Napa Valley Marriott.

Jackson Family Wines has already made three purchases this year: Field Stone Winery and Copain Wines in Healdsburg and Penner-Ash Wine Cellars, a well-regarded pinot noir producer in Oregon’s Willamette Valley. Jackson focuses on deals from $5 million to $30 million, Reimers said.

Gallo, the country’s largest vintner, had a very busy 2015 with four deals, which included buying the Asti winery and its 275 planted acres and the Souverain brand from Treasury Wine Estates. It also acquired J Vineyards & Winery in Healdsburg from Judy Jordan for an estimated $90 million, according to one source.

“If you look at what the Gallo family has done going back all the way to the 1940s, it’s really trying to think about long-term growth and how to set the company up for success a generation at the time,” Nabedian said.

The dealmaking has been spurred in the aftermath of the Great Recession as vineyard prices have increased dramatically. Winery owners preparing for retirement have found ready buyers as they formulate succession plans. That was the case in April when Ste. Michelle Wine Estates in Woodinville, Wash., bought Sonoma’s Patz & Hall winery to bulk up its North Coast portfolio. One industry source put the deal at $45 million.

“I do think we are seeing another generational change, particularly up here in the North Coast. Entrepreneurs who started their business in the 1960s, 1970s, and maybe early 1980s that don’t have a line of sight or interest in their family for succession are looking for a way to have their brands live on,” Nabedian said.

Gallo has benefited from its recent purchases as retail sales of the J brand have grown by 89 percent over the last six months, according to Nielsen. “We had a lot of admiration of what Judy Jordan had built there and felt that we could be good stewards of it and grow it over the long term,” Nabedian said.

 

 

 

 

 

The other driver is the rapid growth of the premium wine market, which is attracting new buyers. For example, The Wine Group, which is known for its portfolio of low-priced wines, last year bought the Benziger Family Winery, a pioneer in green farming practices in the Sonoma Valley.

“There’s some big players who have been notably absent up until this point and at some point there’s going to be a lot of pressure with this premiumization for them to get into the game,” Reimers said.

Constellation Brands, the third-largest wine company, has focused on buying brands, not vineyards, such as Meiomi and The Prisoner. Those two deals totaled $600 million. Private equity investors also are getting into the market: TSG Consumer Partners, a San Francisco-based equity investor in consumer brands, bought Duckhorn Wine Co. and GI Partners bought Far Niente Wine Estates in St. Helena this year.

“We might see more activity from these equity funds,” said Robert Nicholson, president of International Wine Associates in Healdsburg, who moderated the session.

Nabedian cautioned attendees that competition from international companies would make it more difficult for U.S. vintners, especially given a strong dollar. He noted that Spanish vintners are replanting vineyards with cabernet sauvignon as opposed to their more traditional varietals.

Imported wines accounted for 31 percent of sales in the U.S. retail market last year.

“If you are doing business globally and you are talking to wineries outside the United States, they all want to sell more wine in the United States. They see the same trends we see,” Nabedian said.