Sunday, August 25, 2019

How Much is Your Winery Worth Today?


Change Creates Opportunity


The 2019 SVB State of the Industry Report helped change the narrative in the wine business this year. While the industry remained focused on premiumization, I had to report in January that the positive elements that created the industry's astounding success over the past 25 years were hitting a wall. We predicted that M&A would slow this year and thus far, that appears to be a good call, notwithstanding the massive sale of about thirty of Constellation's wine brands to Gallo for $1.7BN.

There is plenty of activity still. Probably once a week both buyers and sellers ask me, "what are average winery multiples?" What they are really asking is "how much is my winery worth?" But there is more to the question. They also want some color on the business environment.

As a banker, I love those questions because it means there might be a financing opportunity (...yes I do have a day job making loans, as boring as that might sound.). 

The short answer to the headline question for today, is there are still plenty of buyers but overall they are being a little more selective, and your winery and vineyard are probably not worth more than they were last year.

Without going into details on a long topic, we are presently oversupplied on grapes and bulk wine from most regions, and the upside to higher sales is for today - more limited than the past when the rising tide of higher boomer incomes along with the belief in the health benefits of moderate wine consumption lifted all boats. Today millennial consumers are spirits and beer consumers, and are trying to cut their alcohol consumption for health reasons.

There are activities that with certainty will return the growth rate in demand that we've been used to,  but that is another VERY long topic for another day. Buyers believe in the strength of the product and know there is upside given time, expertise, and focus.

As it stands, shrewd buyers and sellers are still finding agreement on price and repurposing valuable assets for tomorrow. Investors with a long view recognize the opportunity this current market change is creating. But with any sale, there has to be an offer, and an answer to the question, "How much is my winery or vineyard worth today?"