Are California Wineries Looking to Sell?

2011 brought a long-anticipated wave of sales as owners needed new backers or hoped to retire
Dec 16, 2011

When Fiji Water purchased Justin Vineyards in the closing days of 2010, was it a sign? It’s far from a fire sale, but wineries in California are changing hands while others are quietly taking on new partners. The surge of deals follows two years of slow business activity—the struggling economy meant plenty of wineries were struggling but no one wanted to rise to their financial rescue. With growth slowly resuming, players with deep pockets, such as Fiji Water and Boisset Family Estates, are looking to expand. At the same time, vintners are facing increasing competition, and a generation of pioneering winery owners are getting ready to retire.

In 2011, Wine Spectator reported on more than 20 California wineries and vineyards that found new owners or took on new partners. Sales included giants like Fetzer Vineyards, which was sold to Chile’s Concho y Toro, but mainly involved small and midsize producers such as Gary Farrell, Sonoma-Loeb and Pillar Rock. Wineries were sold for a variety of reasons, including changes in the marketplace, consumer spending and retirement.

In some ways, the sales are a good sign for the industry. Analysts credit the increase in sales activity to a rising economy and to consumers reaching for more expensive wines. Rob McMillan, founder of Silicon Valley Bank’s Wine Division, which works with more than 300 West Coast wineries, says wines in the $20 and over category have the highest rate of growth of any price point. During the recession consumers bought more wine but traded down to cheaper brands. Wineries shifted their focus to meet them, dropping prices or creating second labels. “Prices dropped lower to reflect a softening in demand,” McMillan said. “Now we have bottomed out and started what will inevitably be a long-term growth trend.”

Investors are betting on that growth and are actively trying to expand their portfolios while the industry regains its footing and prices are low. Sam Bronfman, managing partner at San Francisco-based private equity firm Bacchus Capital Management, agrees that the wine industry is expanding. Bacchus, which mostly provides financing to wineries but sometimes invests in them, purchased a stake in Sbragia Family Vineyards in October and is actively seeking out other deals. “The U.S. wine market is growing, so it’s a good place to be,” said Bronfman. “While the trend line dipped during the recession, it will go back up over time as people go back to buying higher priced wines.”

Sonoma County has been especially active. In November, investment group KSSM, LLC, and principal investor Steve Adams purchased Michel-Schlumberger Wines in Dry Creek Valley. Fiji Water’s parent company, Roll International, added Landmark Vineyards to its new portfolio. And Burgundy-based Boisset Family Estates bought Buena Vista Winery.

Vintners also tell Wine Spectator that some wineries have quietly taken on partners or changed hands in the past few years. Limerick Lane Cellars, a Sonoma winery that focuses on Zinfandel and Syrah, was sold to Healdsburg residents Alexis and Jake Bilbro, whose family owns Marietta Cellars, when the original owner decided it was time to leave the business.

There are a growing number of longtime winemaking families selling their businesses. In the face of increased competition, inheritance tax and succession issues, some are choosing to sell rather than hand the reins to a new generation. Pete Seghesio, CEO at Seghesio Family Vineyards, which was sold to Napa’s Crimson Wine Group, says that some family members may not want to get into the business. “You look at trying to buy out the portion of the family that is trying to get out and you are talking big dollars,” he said.

Making deals attractive is the fact that the market looks like it will continue to be challenging for midsize brands in the future. California vintners are seeing increased competition from other countries, discounted wines at retail, fewer sales at restaurants and consolidated distribution channels. “You have this massive amount of brands trying to go through the wholesalers who at the same time are consolidating,” said Seghesio.

From a winery standpoint the distribution, marketing and sales are getting worse all the time. “It’s as tough a market out there as I have ever seen,” said Richard Arrowood, who has been in the wine industry for more than 45 years and owns Amapola Creek in Sonoma Valley. “Finding a wholesaler is not an easy chore."

Like many winemakers with a small operation, James MacPhail made his own wines and also handled sales and marketing. In July he sold his eponymous winery to Napa’s Hess Collection because he was spending more time trying to sell his wines and less time making them. “I found myself spending more time running the business.”

Wineries are also having trouble finding financing. Ortman Family Wines in Paso Robles recently announced that the winery couldn’t meet the demands of its lender and would close. Proprietor Lisa Ortman says the winery had extended itself for growth when the economy took a hit from the stock market crash in 2008. “We tried to operate as efficiently as possible,” she said. “We personally worked as hard as we could, and so did our team. In the end, it wasn’t enough.”

But Ortman appears to be the exception. Despite early predictions that the recession would force wineries into bankruptcy, few producers have actually closed their doors. It can be less profitable for a bank to liquidate a winery than continue funding it. “It seems like the winery owners have weathered this. I don’t think banks want to run wineries too much,” said Bronfman.

Will more wineries choose to sell over the next few years or is the wave ready to recede? McMillan expects the trend to slow since there are a limited number of properties for sale. And with winemakers increasingly positive that the market is turning around, albeit slowly, they may be less inclined to sell. “I think things are much better than they were three years ago,” said Seghesio. “I see the wine business in the clear now.”

Winery Purchases and Sales United States California News

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