There are times when the California wine industry seems like a game of musical brands. The music stopped again on June 10, when Constellation, the world's largest wine company, closed a transaction that included the sale of four wineries from Sonoma and one from Napa Valley to Ascentia Wine Estates, a newly-formed Sonoma-based company. The price was $209 million.
Ascentia acquired five California wineries that have struggled to find a corporate home: Atlas Peak, based in Napa, and Sonoma producers Buena Vista, Geyser Peak, Gary Farrell and XYZin. These labels have had a rocky run in the last few years; Fairport, N.Y.-based Constellation bought them just six months ago as part of its $885 million purchase of Fortune Brands' wine holdings, called Beam Wine Estates. U.K.-based drinks giant Allied Domecq had sold these brands to Fortune in 2005.
Also included in the sale are Washington state brands Columbia Winery and Covey Run, Ste. Chapelle Winery in Idaho, five production facilities in California, Washington and Idaho, inventory valued at $90 million and 646 acres of vineyards in Sonoma County. The eight brands total current annual sales of 1 million cases.
There's an element of back-to-the-future here: Ascentia CEO Jim DeBonis, who was at Allied Domecq and then at Beam Wine Estates from 2002 until the December 2007 sale to Constellation, put together the marketing, sales and production personnel at some of these wineries. "I felt the only way I could finish what I started was to work with the teams I put in place and swing for the fences [by starting Ascentia]," he said. "Having been with these brands for five years I know the quality is there, but you have to do it in the marketplace. These brands will have the limelight now. They are each very important to our business."
DeBonis, who first approached Constellation this past December, closed the financing for Ascentia the day of the deal. The new company's lead investor is GESD Capital Partners, a San Francisco-based private equity firm led by Lou Giraudo, CEO of Pabst Brewing Company. The other major investor is New York-based W.J. Deutsch & Sons, which imports and/or markets about 20 brands, including Yellow Tail and Georges Duboeuf. Deutsch will be responsible for the marketing and sales of the Ascentia brands.
"These were fairly successful [wineries] with Beam Wine Estates. But they began to languish with Constellation due to the fact that they were planning to sell them," said Peter Deutsch, CEO of W.J. Deutsch. "This portfolio we've put together is an ideal complement to our current brands, which are mostly imported. We like this model for our company, by having control at both the production level and the sales and marketing."
The quality of the wines has been inconsistent during their ongoing corporate shuffle. Russian River Valley-based Gary Farrell Vineyards, for example, which currently makes 30,000 cases per year of mostly Pinot Noir and Chardonnay, has been sold four times since 2004. "It's nice to be smaller-owned now," said one Farrell employee. "I can't tell you how excited we are to be with the group at Ascentia, because I don't think we were ever a good fit at Constellation."
Farrell himself, who left the winery in 2006 to work on other projects, was also pleased with the move. "I was very disappointed with how Beam Wine Estates handled the affairs of Gary Farrell Winery following their acquisition from Allied Domecq," Farrell said. "Their actions led to my 'earlier than anticipated' departure. From all I have heard, the chaos further escalated when Beam sold to Constellation."
Farrell, one of the Russian River Valley's pioneering winemakers, also said he was "thrilled" by the sale to Ascentia and DeBonis. "I have known Jim for some time, and he is a very bright, capable and passionate leader who really cares about his businesses and his people."
Geyser Peak, based in Healdsburg, currently produces about 330,000 cases per year of mostly Sauvignon Blanc and Cabernet Sauvignon, which generally retail for between $13 and $23. Buena Vista has demonstrated signs of improvement since stopping production of California appellation wines to focus on Pinot Noir, Chardonnay and Syrah from its 523 acres of estate vineyards in Carneros. The three Pacific Northwest producers, whose wines generally retail for less than $15, currently account for 550,000 cases a year.
DeBonis said that the production capacity at these wineries exceeds current output, so increases are expected in the future. "But we're not going to get ahead of ourselves. I would argue that bringing these brands back into private hands will improve quality," he said.
For Constellation, the sale streamlines a hefty portfolio and reduces debt. "[This] focuses on return on investment for the company, and the proceeds will go to reduce borrowings," said Mike Martin, vice president of corporate communications at Constellation. "It's not a question of them not being good brands, it's a question of [already] having 250 brands in the portfolio."
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