Bill Price is a popular guy these days. He’s a shrewd businessman who knows wine and has access to capital. While he sees turbulent times ahead for wine, he also likes the opportunities of today’s wine market.
The highly regarded private equity investor has acquired a minority interest in Napa Valley’s Buccella winery to go along with a similar minority position with Kistler Vineyards in Sonoma. He owns Sonoma’s famous Durell Vineyard and has his own small Pinot Noir label, Three Sticks.
Price’s investments in Buccella and Kistler, though, pale by comparison with his past wine dealings. As one of the principals of Texas Pacific Group, a leading private global investment firm, he put together TPG’s winning bid in 1995 for Nestlé’s Wine World, owner of Beringer Vineyards, Chateau St. Jean and Chateau Souverain. While terms were not disclosed, the sale was estimated in the $350 million range, with some $60 million from TPG, according to Price.
Five years later, TPG and the other investors in Wine World sold it to Foster’s, the Australian drinks firm, for $1.5 billion. Price said TPG made 10 times what it invested with the sale.
Price decided to keep his hand in wine and bought Durell Vineyard, a highly regarded grower of Chardonnay and Pinot Noir, and then his part in Kistler, which specializes in those two varietals.
“I retired from TPG, so I’m out of the big equity market,” Price told me today. But he has been eyeing a high-end Napa Valley venture, and found it in Buccella, which specializes in Cabernet, selling for $135 a bottle, and lesser amounts of Merlot. Buccella’s owners, Bill and Alicia Deem, needed a partner to expand their business from about 2,000 cases now to 10,000 cases as growth permits. It’s an ambitious plan, but one Price thinks is viable.
Making high-end red wine is capital intensive. “It takes such a long time between investing in grapes and selling the wines, that most wineries need capital,” he said. “Obviously in this [economic] environment it’s getting more difficult to sell wines and raise capital.” Buccella buys grapes from a dozen vineyards and believes in blending those sites rather than focusing on a single-vineyard model. Celia Welch (formerly Masyczek) is the winery’s consultant.
“We’re seeing a lot of changes [in the market] and adjustments in credit [lines],” he said. “Almost every asset class has gone down in value.” As wineries have their assets, namely wineries and vineyards, reappraised, often at lower prices, it makes it more difficult to find lenders, said Price. The result is a downward spiral in winery values.
The proprietors of many family-owned wineries started in the 1970s and 1980s are nearing retirement age, Price said, and without heirs to take over their businesses, they will likely need to bring on partners or sell their business. “It’s a generational thing,” he said. “There are a large number of wineries for sale, and there are more sellers than buyers.” He said he is approached about once a week to look into investing in a winery.
While business such as hotels and restaurants feel the recession almost immediately, “The wine business tends to be on a little later cycle,” Price said, “and the wine industry is starting to feel the consumer pulling back.”
But he sees opportunities in winery-direct sales, which bypasses the traditional distribution system that connects with retailers. “Wholesalers are becoming less important to small, high-end wines,” he said. In the coming months, “I think you’ll see who really has brand value [and] which customers will stick with brands.”
Companies that are heavily leveraged and aren’t selling wine will be particularly vulnerable, he said. There are far more wineries for sale than buyers.