Cet article très intéressant sur l’activité M&A aux USA nous a été communiqué par le société DEMETER GROUP (www.demetergroup.net)
A Perspective on Recent M&A Activity Since the appearance of Wine Business Monthly’s annual listing of Top 30 U.S. Wine Companies of 2003, six, or 20%, of that list have been acquired by other Top 30 companies. The largest of these headline-grabbing transactions include Constellation Brands’ acquisitions of Robert Mondavi Winery in 2004 and Vincor International in 2006, the 2005 purchase of Allied Domecq Wines by Beam Wine Estates and Diageo’s acquisition of Chalone Wine Group in 2005. These mega-transactions represent the continuation of a long-term trend among large, vertically-integrated wine companies of using major acquisitions to increase scale and distribution strength and fill gaps in brand and asset portfolios.
During the same period, there were many other transactions in the industry between a broad range of buyers and sellers including large and small wineries/brand owners, institutional investors and high net worth families and individuals. Notable deals included the sale of the Rex Goliath and Barefoot Cellars brands by their originators in 2005, the acquisition of trophy property Screaming Eagle Winery by private investors in 2006, and the absorption of the Legacy Estates portfolio into Jackson Family Wines’ Artisans and Estates division, also in 2006.
What insights can we draw from this diverse group of transactions about future trends in the mergers and acquisitions market? Not surprisingly, we believe that the mega-mergers mentioned above will become less frequent simply as a result of the dwindling pool of potential buyers and sellers created by consolidation. However, we also believe that the overall level of acquisition activity will continue to be high and that the composition of wine M&A will change.
Specifically, we expect to see particularly strong activity in two areas — brand-only transactions in the premium and super premium market segments and transactions involving luxury estate wineries. Between these two classes of transactions, potential buyers, valuations and deal structures will differ greatly, and we believe that the pool of potential acquirers for each will continue to grow and become more diverse as well as sophisticated. As a result, it will be more challenging yet increasingly important for sellers to become knowledgeable about who the potential buyers are, how to identify them and evaluate their strategic rationale, how to position and value the assets, and how to structure a successful transaction that meets the needs of both parties.
Stand-alone Wine Brands
Transactions involving stand-alone brands are becoming more common as a result of three factors — a growing supply of brands, the increasing mobility of brands, and the emergence of new buyers and sellers for brands.
Growing Supply of Brands. As in other food, beverage and packaged goods categories, wine consumers are gravitating towards new and innovative brands, and the industry has responded with an unprecedented surge in new brand creation. Wine Business Online reported that 503 new wine brands were introduced in supermarkets in 2005, a 62.8 percent increase over the 309 brands introduced in 2004. Wineries worldwide are marketing wine as a more casual, consumer-friendly beverage through the introduction of novel, non-traditional labels such as Yellow Tail, Smoking Loon, Three Thieves and Seven Deadly Zins. We believe the increase in the sheer number of brands will contribute to transaction activity.
Increasing Mobility of Brands. With the growing importance of non-traditional wine labels and global sourcing, brands are increasingly separable from growing regions, vineyards and production facilities, particularly in the high-volume popular premium and super premium categories, which include premium wines up to $15 per bottle at retail. Often created and incubated by small, entrepreneurial companies, these brands grow to a stage where they are ripe for transfer to larger owners possessing the big-company distribution, marketing and promotional resources necessary to achieve their full potential. This was illustrated in the Rex Goliath transaction, in which the brand was sold to a larger acquirer with significantly greater sales and distribution capabilities.
New Buyers and Sellers. We are witnessing the rapid growth of a new tier of wine companies, many of which did not even exist ten years ago. These « virtual » or « negociant » companies are characterized by an intense focus on sales and marketing with little or no fixed asset base. These include pure brand marketers such as Castle Rock Winery and 585 Wine Partners, as well as others that own some production assets or vineyards but share a similarly strong focus and expertise in sales and marketing. This group includes Purple Wine Company, Don Sebastiani & Sons and Precept Brands of Washington. Some of these companies, such as Purple Wine, 585 and Precept, are already building their brand portfolios through acquisition, while others, such as Don Sebastiani & Sons, focus on creating and incubating unique brands in-house. As these and similar companies continue their rapid growth and seek to augment or rebalance their portfolios, they are likely to play an increasing role in brand M&A activity.
Luxury Estate Wine Brands
Across the spectrum of food, beverage and other premium packaged goods categories, consumers are increasingly « trading up » to the brands that offer the highest quality, authenticity and integrity. The luxury wine segment, which we define as wines retailing for over $50 per bottle, is a beneficiary of this trend, experiencing strong growth and becoming an increasingly prominent part of the wine industry. As consumer interest in luxury wines continues to grow, the best American brands are approaching the status and visibility of the great wine estates and vineyards of Bordeaux and Burgundy. Luxury wine brands have a number of unique characteristics that differentiate them from other segments of the industry.
Integrated Estate Model. In contrast to the many premium and super premium brands which are not strongly associated with any region or appellation in the consumer’s mind,
specific location and grape origin usually play a critical role in the identity, heritage and authenticity underlying luxury brands. As a result, luxury brand wineries are typically vertically integrated operations owning or controlling a significant portion of the vineyards providing their grape supply, and often possessing « showcase » wineries and visitor facilities.
Potential for Direct-to-Consumer Distribution. Because of their high visibility and prices and relatively low sales volumes, luxury brands have the potential to bypass the regular three-tier system and sell a large portion of their wine directly to consumers (usually at full retail price) through mailing lists and wine clubs. It is not unusual to see luxury brands selling over 50% of their volume direct. Not only does this result in higher profitability, but brand owners also have the opportunity to communicate directly with consumers allowing full control over the relationship and the brand’s positioning.
Attractive Economics. There is growing recognition of the potential for individual luxury wine brands to achieve both significant volume and high prices in the marketplace. Silver Oak Cellars, Opus One and Joseph Phelps Insignia are examples of brands that have achieved impressive combinations of volume and price, with products selling tens of thousands of cases at prices exceeding $100 per bottle at retail. High prices and relatively low selling expenses result in high operating margins and cash flows that support the investment in vineyards, inventory and facilities required by the business model. Mature brands not making major new investments can throw off significant free cash flow, and we believe that well-positioned luxury brands can generate returns on investment at percentages at least in the mid to high teens and potentially in the low twenties, with relatively low risk and a high degree of stability.
Flexible Ownership Scenarios. Unlike high volume premium and super premium brands, luxury brands are viable either as stand-alone entities or as part of a larger company. Their visibility, direct distribution potential and attractive economics allow them to operate effectively without the benefit of a large sales and distribution network. Yet, they can also thrive in a corporate brand portfolio if the ownership structure preserves the identity and integrity of the brands, which usually means keeping vineyards and facilities intact and marketing the brand separately from higher volume labels. For example, within Jackson Family Wines, the Artisans & Estates division manages the high-end boutique wineries, including Matanzas Creek, Hartford Court and La Jota Vineyard, separately from the Kendall-Jackson label. Similarly, the Coppola Companies’ Rubicon Estate organization was formed to manage the Rutherford wine estate and market Rubicon separately from the company’s higher volume, non-estate wines.
Transition Point. Because many of the independent luxury brands in California were established over the last thirty years by founders who entered the wine industry as a second career, they are now approaching a transition point that will involve either succession to the next generation or a sale of all or part of the business, depending on liquidity needs. Currently, many of the owner/founders of these estates are beginning to evaluate their options, and we believe that ownership changes will occur over the next few years. Because these are highly attractive properties for both corporate and non-
corporate buyers, we believe there will be a broad audience and active market for these brands.
M&A activity in the wine industry will continue to be strong, particularly in premium and super premium brands and in the luxury segment, with an expanding and increasingly sophisticated spectrum of buyers. Most importantly, as illustrated below, almost every aspect of a transaction, including buyers, approach to valuation, structure and ongoing role for management, will vary significantly depending on the nature of the brand and assets being sold.
As a result, it is essential for sellers to correctly define the pool of likely buyers as well to understand their motivations in order to be able to position and value assets effectively. For example, vineyards and facilities, which are essential components of a luxury brand offering, are not likely to enhance the value of a high-volume super premium brand, particularly if the buyers are asset-averse negociants. A large corporate buyer assessing a super premium brand will probably focus on its expansion potential in traditional channels, whereas individual or institutional investors evaluating a luxury brand may instead be more interested in expansion potential in direct-to-consumer or non-traditional channels, particularly international.
Valuations span a wide range, differ greatly by market segment, and cannot be predicted using a single rule of thumb or industry averages. For example, stand-alone premium and super premium brands have traded in a range of 1.5x to 2.5x trailing sales as a function of their growth rate, margins and ultimate volume potential. In contrast, luxury estate brands have transacted at much higher multiples, often exceeding 4.0x trailing sales, based not only on their profitability and the specific mix of assets included in the sale, but also on intangible factors including reputation and visibility in the wine world.
Deal structure and the role for management or founders post-transaction will also differ greatly depending on the nature of the assets and the buyer. For example, stand-alone brand acquisitions by large corporate buyers are typically 100% asset purchases, with no required ongoing involvement by a founder, since the brand can be quickly and effectively integrated into the larger brand portfolio. In contrast, the acquisition of a luxury brand often requires the management/founder’s ongoing participation with retained equity ownership for continuity of brand image and to maintain long-standing relationships with consumers and the trade.
What are the implications for sellers? Very simply, an effective sale process must be thoughtfully tailored to the nature of the assets and the highest-probability buyer segments. In an increasingly complex M&A environment, the outcome of a « shotgun » process, in which a package of assets is shopped generically to a broad laundry list of wine industry participants, is likely to fall short of expectations.