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Wine business in prime point of buyout trend, expert says

SANTA ROSA, April 9, 2008 – We're in the first year of a projected two- to three-year period of escalating prices paid for wine businesses in relation to earnings, according to an industry investment expert at a conference this morning on wine-related mergers and acquisitions.

The wine business is approaching a historic period in which 1,000 to 2,000 of the 2,400 wineries in California could be for sale in the next 10 years, Bill Price told the audience of nearly 300 at the BUSINESS JOURNAL's Wine Industry Conference at the Vintners Inn. He was citing a Silicon Valley Bank/Scion Advisors study on winery ownership succession released earlier this year.

"In a growing or consolidating industry, it generally pays to sell early or late," he said, regarding timing in relation to the trend. "If you sell in the middle, there generally are compressed multiples."

That's because there are few properties for sale at the beginning, so buyers are paying higher multiples of earnings before taxes, depreciation and amortization (EBITDA) than they would after a few years, when neighbors see the high multiples and put their businesses on the market, according to Mr. Price.

Mr. Price co-founded Texas Pacific Group, now TPG Capital LP, a private-equity firm that bought Beringer from Nestle, took it public and sold it to Foster’s Group for $1.5 billion. He owns Durell Vineyard with 200 acres of vines in the Carneros and Sonoma Valley appellations and founded 1,000-case-a-year Sonoma-based label Three Sticks Winery in 2002. In January, he took a minority stake in Kistler Vineyards.

He contrasted the acquisition window for high-tech companies, which are built to grow quickly and be acquired, to that of cyclical industries such as agriculture, which should be built to be sustainable. He said he knew of two wineries that have followed the high-tech model of fast growth in the last couple of months needing a capital infusion or having to sell.

To maximize the value of a wine business at the time of sale, the ownership should put a succession team in place. Otherwise a prospective buyer may discount from the offer the cost of hiring professionals to fill key roles held by the proprietors, according to Mr. Price.

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