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Would-Be Winery Buyers are Watching and Waiting from the Sidelines

Photo by: Greg Gorman

Posted: Feb 17, 2009 12:22pm ET

Looks like some folks still have dry powder.

I read today that Oracle, the software giant, is on a buying spree, having pulled the trigger on 10 acquisitions in the past year, according to a story in the Wall Street Journal.

Some big-stakes players in the wine business are quietly shuffling their cards as well, watching the market and making plans to buy when the time is right.

Given the downward spiraling of real-estate values, wine company holdings are in similar straits, whether it’s physical plants or vineyard land. Those who can weather the recession and don’t need to sell should be fine; no doubt wounded but having survived. But there are many wineries facing slow sales, significant inventories and cash or credit issues. In other words, they’re in the same boat as most companies.

Just yesterday Foster’s, the giant Aussie beverage concern, with large wine holdings both there (Lindemans, Penfolds), and in California (Beringer and Chateau St. Jean), said that while its wine business remains profitable, it would sell weak performing brands in Australia and about 12,000 acres of vineyards in both countries. But it stopped short of naming names. If the vineyards are prized, such as prime Napa Cabernet land, they might command a significant price.

In a deflationary cycle, where prices are down and likely headed further down, winery buyers are waiting to see when we reach the bottom. There are many attractive companies out there, with good wines, volume and steady sales. Sebastiani was one of those wineries that fit that bill. It sold in December for $47.5 million. People I’ve talked to think it is perhaps half or one-third of what it might have sold for two years ago.

Elite lifestyle wineries, where people have invested millions in raw land and showcase wineries with little prospect for near-term profit, are far less appealing. Their business models began with millions and what amounts to play money for most vintners. Wineries that spent millions on a small vanity vineyard and cutting-edge winery only to sell a few hundred cases at $200 a bottle are not in the business these would-be suitors are eyeing. They’ll get into the wine business to make money.

Dennis D Bishop
Shelby Twp., MI, USA —  February 17, 2009 4:22pm ET
I agree, the bottom has yet to be found. Many think there is still approximately 14% to 20% yet to fall in real-estate values!
John Wilen
Texas —  February 17, 2009 6:00pm ET
As a winery owner, how do make a small fortune in Napa Valley? Start with a large one....
Sam Chen
The Golden State —  February 18, 2009 12:11pm ET
Jim, I have a client who loves Pinot Noir. He and his wife are thinking about retiring and buying a small winery to fulfill their dream. He told me that they are looking elsewhere like Oregon and Washington even though they have seen great buying opportunities here in Napa Valley. Why? We are in a state with the highest sales tax, the highest income tax rate and the highest gas tax. They all added up to take a big bite from our discretionary income. I am afraid we have not nearly reached the bottom yet.
Corbin Butler
February 18, 2009 4:47pm ET
James, Do you see the wine prices for big names like Harlan, Screaming Eagle, or Bryant lowering their prices or do they just hold their inventory and wait for the prices to come back? Or will their inventory that the mailing list people reject go to wine shops and resturaunts accross America?

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