US Vineyard M&A Activity: 2015 - 2017

One of my highlights of Christine Wente’s guest lecture was her focus on how Wente Vineyards has managed to keep the business “in the family” despite (theoretical) opportunities for acquisition by larger player in the wine industry. One of the follow-on questions to this asked how many smaller vineyards opted to not keep their businesses “in the family”. Since Christine didn’t have exact numbers on the spot (who really does?), I decided to dig into some wine-related M&A data for this week’s blog post.

Over the past three years (1/2015 – 12/2017), there have been 131 acquisitions in the U.S. wine industry, ranging from owner-operated vineyards to tour guide companies to wholesale distributors. Narrowing this field down to purely vineyard operators and wine producers whittles this total down to 43. 

While there is not a slew of financial data surrounding these acquisitions (as most of them are private), 9 public transactions closed for a total of $976M, driven primarily by Constellation Brand’s acquisitions of Meiomi Wines (2015), The Prisoner Wine (2016), and Charles Smith Wines (2016).

As to be expected, the top three acquirers over this period were all in the Top 10 of global wine producers – E&J Gallo Company (6), Jackson Family Company (6), and Constellation Brands (4). However, outside of these larger players, vineyard M&A appeared to be more focused on one-off transactions – only three vineyards were involved in more than a single M&A event from 2015 – 2017, bringing the total number of independent acquirers during this period to 27.

Given the continued growth in US wineries and sub-20 yearly acquisition totals, it’s safe to say family vineyards aren’t facing a wave of mass consolidation quite yet. That being said, the increase in US wine consumption as well as the rise of many “niche” players over the past few years may spark more creative expansion strategies that I’m particularly looking forward to diving into over the rest of the quarter. 

Data Sources:

1. M&A Activity: Pitchbook. [Criteria: Deal Date: From: 01-Jan-2015, To: 31-Dec-2017; Deal Option: Search on a full transaction; Deal Type: M&A/Control Transactions; Keywords: "wine" OR "wines" OR "wineries" OR "vineyard" OR "vineyards" OR "cellar"] 
2. US Winery Data: Wines & Vines. [https://www.winesandvines.com/template.cfm?section=widc&widcDomain=wineries&widcYYYYMM=201512]

Does experience = quality?

Our discussion in the last class left me thinking about the role, and value, of history in winemaking.  Christine Wente shared her family’s impressive history, but also couched it with the fact that there were families in Italy that had 20+ generations in the family wine business.  On the surface, it seems like that storied history should give old world countries an insurmountable advantage in the knowledge of wine making, yet there are many instances where winemakers (and countries) new to wine can make inroads, such as in the case of Inniskillin.

              Similarly, a tradition in wine making doesn’t necessarily mean that wines will be high quality – for example, I traveled this summer on a GSB Global Seminar to Greece, which has been producing wine for the last 6,000+ years and has a strong culture of wine consumption (pretty much every meal we had was served with wine).  You would think that this might provide Greece a strong advantage in wine making, but the winery we visited (Ktima Gerovassiliou) was only established in the 1980s and was one of the few wineries on the Greek mainland that produced wines with high enough quality for export, since ~90% of Greek wine is consumed domestically.  That winery collected artifacts from ancient Greek wine production – indeed, the Greeks developed some of the earliest wine containers and wine presses found to date (see picture below).  It was interesting to see how strong the history of winemaking is in Greece, yet how difficult it has been for that country to produce wines on par with the likes of France and Italy.  I’m sure political, regulatory, and economic forces most certainly played a role, as we have been discussing in class.

I’m looking forward to learning more in the new few weeks about how different countries rose to prominence in winemaking while others have lagged behind – which will lead into our midterm project to predict where the next big wine regions to rise to prominence will be.

Barreling Down the Douro River in Portugal

An overlook of the Douro River in Porto, Portugal. 

Last class's discussion of Portugal's idiosyncratic wine export market gave me reason to reflect on my 2016 vacation to Porto and the Douro Valley. I chose this region as the final stop on a wandering Iberian road-trip (also the trip during which I decided to apply to the GSB... coincidence?). I liked port wines, but I did not expect to be so thoroughly charmed by the history and geography of the area, which seemed fully devoted to its namesake libation.

I had no idea until visiting, but port wine's development spans two regions.  It is grown, pressed, and barreled in the Douro Valley, and then sent down the Douro River to Vila Nova de Gaia (the town on the other side of the river from Porto) for aging.  Historically, the barrels were sent in these quirky flat-bottomed boats called "barcos rabelos," (see below) although nowadays the boats are just for show and the wine is trucked.  The rationale for this geographic shift is that the climate in the river valley is preferable for growing, but the cooler temperatures in the city near the coast are preferable for aging.  It's a marvelously natural solution to climate control from centuries ago.

The tasting rooms in the city all offer tours amongst the barrels and other touristy charms (I definitely splurged on a live barrel-adjacent fado performance, Portugal's mournful vocal tradition, in exchange for some so-so wine, but anyone who has ridden the gondolas at Sterling in Napa can sympathize).  Porto is a gorgeous and well-preserved historic city, but the real stunner is the Douro river valley itself (it's also a UNESCO world heritage region), where every inch of hillside is cultivated with vines, and the slopes spill right into the winding river.

Another layer of confusion for me was identifying which grapes went to which bottles. All of the quintas (or vineyards) contribute to a variety of port blends, with the winemakers tasting to ensure that the taste of Dow's or Graham's remains consistent year over year, rather than highlighting the idiosyncratic flavors of various vintages. As a plus, it was one of the only wine tours I've been on where the guide invited us to pick and taste grapes right off the vines!  I do not see that happening anytime soon in California...

There is literally oodles more history and detail, but I'll leave that to our academic pursuits.  I encourage all of you to add Porto and Douro to your travel lists.  You won't regret it!

The barcos rabelos parked along the shore of Vila Nova de Gaia, with Porto in the background.

The rooftops of the tasting rooms and barrel houses of Vila Nova da Gaia, with Porto in the background. 

A fado performance in the Calem barrel house in Vila Nova de Gaia. 

A scenic first glimpse of the Douro River Valley on the drive over from Porto. 

 A look at the Douro River from the village of Pinhão.

 Panning slightly to the left...

A scenic tasting at Quinta do Bomfim in Douro, who primarily supplies Dow's.