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Robust M&A Activity on California's Central Coast

by Cyril Penn
August 31, 2020

 

While the pace of mergers and acquisitions in the wine sector paused in March and April following shelter in place orders, the market picked up in May and remains brisk with more winery deals in the pipeline, the co-owner of a vineyard advisory and management firm based in Paso Robles said last week.

“This is an exciting time for wine mergers and acquisitions on the Central Coast,” broker Jenny Heinzen said during the Central Coast Insights symposium. “We’ve got a lot of activity. People are still willing to take the risk. There’s doing their due diligence and moving forward.”

Three Big Deals Since May

  • Treasury Wine Estates Sold its 825-acre Cat Canyon Vineyard to a Sran Vineyards LLC for $18 million or roughly 21,000 per vineyard, an older vineyard that needs some replanting, back on May 14.
  • An LLC controlled by Harvard sold more than 7,000 acres valued at $120 million to an LLC controlled by a Canadian Pension fund, a deal that closed June 26. The management team associated with the venture, Shandon Vineyard Properties, remains the same. 
  • Booker Wines brought Constellation Brands in as an investor in July with Zepponi & Company, serving as financial advisor.

Four Types of Buyers 

Heinzen said there’s essentially been four primary types of buyers:

  • Large Wine Companies such as E&J Gallo buying brands and large vineyards.
  • Portfolio Wineries, such as Vintage Wine Estates, WX Brands and WarRoom Ventures.
  • AG Investors, including local farm managers, but more often pension funds and institutional investors.
  • Lifestyle Buyers, and there are many more of them this year. 

Heinzen said ag investors “have a significant amount of dry powder with a sharp pencil.” 

She said lifestyle buyers previously called three times a month, but are now making enquires daily. 

Heinzen cited several vineyard transactions between $2 and $10 million and said at least two Paso Robles wineries are currently in escrow, as are two large vineyard sales, while the long-delayed Constellation-Gallo deal expected to close next year.

While there have been vineyard removals and the grape market is soft, Heinzen said Central Coast vineyard prices remain similar to what they were in 2018 and 2019, typically $50,000 per planted acre on the West Side of Paso Robles and closer to $30,000 per planted acre on the East Side, tracking roughly with Monterey County. 

One of the big variables, of course is water. Pending groundwater policies could affect land prices. 

“We’ll continue to see sales activity, there’s this whole return to the homestead, large companies shifting brands around, and there’s a pool of money with institutional investors,” Heinzen said. 

Interest rates are running at about 3.5 percent for a 30-year fixed ag loan, Heinzen said, “The best I’ve seen in my 20-year career.”

Joining Heinzen in the discussion was Pat Roney, CEO at Vintage Wine Estates, which has closed 22 acquisitions in the last 4 and-a-half years and expects to do more. Roney said each transaction was different with some taking up to two years to complete.

Roney said Covid-19 won't halt M&A activity and if anything will create opportunites in the next 12 - 18 months.  

Roney’s advice for wineries considering a potential sale? Prepare; know your contracts (ideally be as contact light as possible); understand your sales channels; be objective and fact-based - not emotional; and consider professional help. 

“We look for sellers who are realistic in their expectations of what’s going to happen in a transaction," he said.  

“I can’t say it enough, you have to be prepared. ... Get your financials together.”

 

 

 

 

 


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