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Investment Group Buys Majority Ownership of Kosta Browne

Boston equity firm J.W. Childs Associates buys control of famed California Pinot Noir producer; founders remain co-owners

James Laube
Posted: January 5, 2015

Kosta Browne, maker of some of California's most in-demand wines, has a new majority owner, replacing one equity firm with another. It’s a move that the founders and co-owners believe further strengthens their Sonoma winery and their plans to expand their mix of single-vineyard and appellation series Pinot Noirs.

The new partner is J.W. Childs Associates, a Boston-based private equity firm that focuses on investing in middle-market growth companies. It bought out Vincraft, which purchased a controlling interest in KB in 2009.

Terms were not disclosed, but the structure of the deal is similar to Kosta Browne’s first equity deal in 2009,which allowed some of the older investors to cash out of their investment, reportedly for close to $40 million. None of the parties involved in the new deal would talk numbers, but industry sources said the price tag is substantially more than what Vincraft paid five years ago.

Michael Browne, 46, Dan Kosta, 42, and Chris Costello, 40, who built Kosta Browne into one of California’s most successful brands in the past decade, still own 40 percent of the winery.

The deal amounts to an equity swap, Browne told Wine Spectator. Vincraft, owned by Bill Price, Walt Klenz, Pete Scott and Scott Gilbertson, realized its financial goals and wanted to sell their interest, he said.

Browne said the challenge was finding the right partners. Childs is run “by very smart guys who understand the business” and will allow Kosta Browne to continue to focus on its line of Pinot Noirs. The winery, which makes about 20,000 cases of Pinot and a smaller amount of Chardonnay, intends to increase production slightly. The winery sells most of its wine direct and has a waiting list that is thousands of names long, Browne said.

Under Vincraft, Kosta Browne built a new winery in downtown Sebastopol, increased production and raised prices; Browne’s own wine brand, Cirq, is also made in their facility. John Childs, head of the J.W. Childs firm, is also an investor in Cirq.

The new deal is “not very much different than the first chapter with our friends-and-family investors,” said Browne. “As you know, [at that time] we gave up more than 50 percent control and retained 40 percent, but we remained in control of the business. The song remains the same. Strong investors invest in strong teams."

Kosta and Browne originally pooled their tip money while working in the restaurant business to start their winery, with their first major release coming in 2000. Their real breakthrough came with the 2003 vintage, with all six of their Pinots earning outstanding or classic ratings. Their 2009 Sonoma Coast Pinot Noir was named Wine Spectator's Wine of the Year.

"Over the years we have focused on progression," added Kosta. "We have a vision of winemaking, farming and culture that is bolstered by the support of key stakeholders. Now we have a new stakeholder that is taking the baton. This is the key to progress: Partners who understand our original vision."

Michael Henderson
San Francisco, CA USA —  January 5, 2015 1:30pm ET
Glad they got the money but with it comes a real challenge to remain true. Time will tell but I have my doubts.
Jeffrey J Sattler
Phoeniz, Arizona USA —  January 5, 2015 3:05pm ET
Only time will tell if the song truly remains the same. Investors generally, and rightfully, want one thing...grow their money.

It seems telling that KB will "...increase production slightly." Good luck.

This is why I am loyal to operations like Dehlinger...family owned and operated and in complete control of their destiny.
Mr-mrs Glenn T Irwin
Knoxville, TN —  January 5, 2015 3:48pm ET
Michael wants to make more single vineyard and designate wines. That alone means production will increase slightly. I dont think KB slipped since 2009 and I doubt seriously that it will now. As long as Dan and Michael remain huge minority stakeholders and totally engaged in the business, it will fare very well.
Thomas Simmons
Mission Hills, KS —  January 5, 2015 4:20pm ET
The expansion came after the 2009 sale which bought out some of the original investors. There has been no significant fall off since then so I would say it should be business as usual.
John Glas
Bloomington, MN —  January 5, 2015 6:04pm ET
No worries for me. Not a fan of over the top Pinot.
Rick Lawall
Maplewood, NJ —  January 5, 2015 6:07pm ET
I haven't noticed a dramatic change since 2009, I'm hopeful that they can keep moving in a good direction...
Charles Ball
Radnor, PA —  January 5, 2015 6:50pm ET
Price increases and increased production...supply and demand curves both going up is a good thing for the winery, we'll see if it remains a good thing for those on the mailing list.
John W Dunn
Dyer IN —  January 6, 2015 9:04am ET
I was skeptical after the first money invasion but those fears turned out to be groundless. I am skeptical again.
Emily Richer
St. Helena, CA —  January 6, 2015 5:42pm ET
Having a finance and strategic planning background before I started a brand and made wine, I am ever bemused by the comments on these transactions. It seems consumers are even more confused about the benefits and impact of financial support than they are on that elusive and debatable subject--wine. Access to happy, fresh capital can allow a business leader and vintner to focus on their goals and opportunities. There's no rule that a thriving BUSINESS necessitates reduction in wine quality! Totally silly to assume investment is the devil. ALL businesses require investment, including wineries. OK, rant over :)
James Laube
Napa —  January 7, 2015 11:29am ET
Points well made. I haven't noticed any decline in quality, but rather about the same if a shade more elegant and refined. You expect winemakers to adjust styles with experience and wine is an expensive business that burns through a lot cash. Discovering the next new tier of vineyards is an exciting phase many wineries are presently experiencing. A winery that seems to have stretched too far is Williams Selyem and Bob Cabral, the former winemaker, would tell you as much.

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