The brisk pace for sales of North Coast vineyards, wine brands and wineries in recent years slowed in 2017. It was a “roller-coaster ride” of a growing year that ended with a long, likely below-average-sized harvest punctuated by record September temperatures and October wildfires.
Mergers-and-acquisitions activity in the U.S. wine business in 2016 reached its highest level in the past 10 years, according to Matt Franklin of Zepponi & Company, a Santa Rosa-based firm that has advised on a number of high-profile deals in the industry. For the 23 transactions with a business value over $10 million, the transaction volume reached $2.4 billion. Deal volume involving brands is on track to stay below $500 million this year, and the size of transactions didn’t reach the big price tags of 2016, Franklin said.
“Perhaps, what happened this year was there were so many big transactions in 2016 that the big strategics are taking a breather,” he said.
“Strategic” is a category of wine M&A player that looks for brands or physical assets that will advance business goals such as expanding into a geographic area, varietal or style of wine or retail price point, or securing grape supply or production capacity.
In 2016, there were a few big deals in the hundreds of millions of dollars, Franklin said. GI Partners sold St. Helena’s Duckhorn Wine Co. to TSG Consumer Partners. GI acquired a majority of Oakville-based Far Niente Wine Estates. Constellation Brands bought The Prisoner portfolio from Napa’s Huneuus Vintners.
This year, the largest deal was Gallo’s purchase of 600-acre Stagecoach Vineyard in Napa Valley, reportedly for $180 million. But most transactions were for less than $100 million, Franklin said.
The Stagecoach deal is part of the continuing trend in recent years of large wine companies’ buying real assets to support growth. Gallo also had done that in 2015 with the purchase of The Ranch custom winery in Napa Valley.
This year, Napa’s Delicato Vineyards acquired Blossom Hill Winery on California’s Central Coast, picking up growth capacity of 4 million more cases annually. Lodi’s Michael David Winery bought Silver Oak Cellars’ Alexander Valley winery to produce North Coast wines. Vineyards in Napa Valley have long been in hot demand, but the Stagecoach deal sent deal-making into high gear, Franklin said. Boisset Collection’s Raymond Vineyards acquired the 55-acre Bartolucci Vineyard near St. Helena.
Grape supply could be crimped from the 2017 North Coast winegrape harvest. Before harvest this year began in early August with early picking of Napa Valley and Sonoma County chardonnay and pinot noir grapes for sparkling wines, expectations in the local wine business were for a crop of average tonnage or above, according to Brian Clements, partner with Novato-based grape and bulk-wine deal-maker Turrentine Brokerage.
Then came a blast of several back-to-back days of triple-digit temperatures and thunderstorms.
“Then we go into harvest, and it started looking like it was average or below,” Clements said. “It’s depressing, because wineries need their fruit.”
The scale of the cab crop will tell the rest of the tale of the 2017 North Coast crop, he said. But when the cab crop was in the home stretch in Napa and Sonoma counties, and about three-quarters done in Mendocino and Lake counties, massive wildfires started burning uncontrolled through those counties from Oct. 8 through the end of the month. Testing companies say “smoke taint” won’t be much of an issue for the 2017 vintage, and a small fraction of the vineyard acres in the North Coast are thought to be irrecoverably damaged.