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FINANCE Wine Industry Finance 2013 What Finance Insiders Think An influential panel shares its views on trends, deals and interest rates highlights •Six executives from Wines & Vines' Top 20 Finance Companies share their viewpoints regarding the state of wine industry finance. By Ben Narasin T his year Wines & Vines surveyed six of the most knowledgeable execu- tives in North American wine industry finance about the past year and what's ahead. These banking veterans weighed in on the availability of credit, supply and demand, risk, interest rates and investment potential in areas Vic Motto: Activity has picked up some (on the M&A [mergers and acquisitions] side), with more sellers and somewhat improved buyer interest, but it's still narrow. There was a period when private equity institutions—REITs, PE, hedge funds— were very interested in the wine industry, though they knew very little about it. That has substantially diminished. In commercial banking it seems more competitive. They're aggressively seeking business. Banks are competing for loans. What has changed during the past year in wine finance? Rob McMillan: One of the biggest changes: Everybody is looking for property. That's produced a bit of a run on vineyards and vineyard financing. Next, a continuation of what we've seen for several years: the roll ups of wineries, and investments from internal wine players and externally. There's been a lot of talk of China investing in the U.S., but you can pretty much name your country and (they're) looking for deals. There's a pattern of rolling up wineries. Mark Brody: There's a greater sense of confidence as a result of DTC (direct to consumer), distributor wine sales and merger and acquisition activity. All those things give people a greater sense of a sustained recovery, greater confidence in the value of a property and more confidence going forward in building their brands. That confidence leads to more financing opportunities with the right kinds of players, and the banking industry has responded. velopment to private equity. Rob McMillan (Silicon Valley Bank) is executive vice president and founder of Silicon Valley Bank's Wine Division, based in St. Helena, Calif. He manages a deal team and assists clients and bankers by sharing his views of the macro factors impacting the economy and the fine wine business. He has published reports of varied and emerging wine industry trends, and he lectures at numerous West Coast universities. He authors the bank's annual State of the Wine Industry Report and speaks about the topic regularly. 32 W in es & V i ne s s e pt e m b e r 20 13 "We've had fantastic years. It's a combination of continued efforts, low interest rates and Quinton Jay: What has changed the most is that the economy has improved and deals are happening: deals that people want to do and deals that got closed. We're also seeing a lot of vineyard deals because wineries clearly need grapes for their projects, and there was no increase in plantings the past four to five years. No one was putting sticks in the ground. from real estate to vineyard de- Rob McMillan: • embers of the panel M represent traditional banks, a private equity firm, an investment bank and a farm credit organization. refinancings." Mark Brody: "If you're a well-run company, it's a buyer's market. If you're less well run, it's a lender's market." Perry DeLuca: The market is very competitive, and the competition continues to intensify. Banks are competing very heavily on deals, on the commercial banking deals they consider to be creditworthy—and getting increasingly so. Ernie Hodges: We view the wine industry in a much more positive vein, particularly in the Central Coast. We see positive winery performance with improving sales, increased winery investment in equipment and an increase in winery startups. Demand has picked up, quality has improved, land values have picked up because the prices people are willing to pay have improved, and the overall view is positive. In general, outlook is positive and improving. As to vineyards, if a good piece of vineyard land goes on the market, it's going to attract a lot of interest in a short period of time. Also, there's a lot of pending appraisals out there. There is a lot of demand. There is a statewide shortage of quality appraisers; all the lenders are scrambling to get appraisals done. Mark Brody (Umpqua Bank) is a 30-plus year banking veteran currently overseeing Umpqua Bank's commercial-lending activities in the Bay Area. He is senior vice president and manager of Bay Area Commercial Banking at Umpqua Bank and leads Umpqua's Wine Specialty Group. Brody was CEO and general manager of Cline Cellars in Sonoma from 2001 to 2003 and founder of the Wine Advisory Group.