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Tuesday, August 26, 2008, 8-10:45 a.m., Napa Valley Marriott, Napa

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September 25, 2008, 5:30-7:30 p.m., Doubletree Hotel, Rohnert Park

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Consolidation just beginning in luxury wine, expert says

STRONG SALES GROWTH, DISCERNING CONSUMERS DRAWING RANGE OF BUYERS

NAPA – Consolidation of ownership of higher-priced wine brands and the assets that produce them is still at the very early stages, according to an investment banker behind several such recent deals.

Strong growth in sales of wines retailing for more than $12 a bottle, vintners exiting the business and increasingly distinguishing consumer tastes are attracting not only the corporate buyers but also more high-net-worth families or individuals as well as private-equity firms, according to Jeff Menashe, managing partner of consumer products investment banking firm Demeter Group of San Francisco.

Part of this, too, is a projected “age wave” of winery ownership transition in coming years, according to a recent report by Silicon Valley Bank and Scion Advisors.

“Most of the activity will be with Napa and Sonoma wineries,” he told several dozen wine industry professionals gathered for a luncheon seminar on mergers and acquisitions. His firm’s clients include Rosenblum Cellars and Stag’s Leap Wine Cellars, local wine businesses which have traded hands recently.

CPA firm Moss Adams put on the event at the Napa Valley Marriott to explore motivations behind a string of headline-grabbing wine deals in recent months.

Mr. Menashe buyers are attracted to two general groupings of “white space” opportunities, or high-growth and underserved markets. On one side largely are corporate buyers looking for brands retailing for more than $12 a bottle and want strategic assets such as distribution agreements and synergies that support high volume growth, lower sales costs and less overhead.

Ray Chadwick, president of Diageo Chateau & Estate Wines in Napa and another speaker at the luncheon, agreed that consolidation among high-end wines is just beginning. He noted that Diageo’s $105 million acquisition of Rosenblum, to be completed this month, fit the large drinks company’s desire to increase the scale of its high-end wine portfolio.

The other group of prospective buyers is looking for brands selling for more than $50 a bottle with a margin structure that can be self-supporting without other brands, have less dependence on an expensive national sales force and include assets that support high-margin sales directly to customers, according to Mr. Menashe.

Recent sale prices for high-end wine brands and enterprises, when expressed as multiples of earnings before taxes, depreciation and amortization, have been exceeding the three-year average, according to Mr. Menashe. Rosenblum reportedly changed hands for more than 15 times EBIDTA.

Sale comparisons are even more startling when represented as company value per acre of property, according to Garen Staglin, another speaker at the luncheon and a partner in Demeter. He is also a co-owner of Staglin Family Wines in Rutherford and former president and CEO of eOne Global.

“The enterprise price per acre of these transactions is $1.2 million to $1.5 million, which is 40 percent to 50 percent of a winery in Saint Emilion’s price per hectare,” Mr. Staglin said, referring to a winegrowing area of France’s Bordeaux region where Chateau Bellevue sold last year for 10 million Euros for three hectares, or 3.33 million Euros per hectacre.

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