Issue link: http://winesandvines.uberflip.com/i/400294
96 W i n e s & V i n e s n o V e m b e r 2 0 1 4 R E A L E S T A T E Econ 101 There are a number of structural issues in the wine industry that create further obsta- cles for owners wanting to sell their com- pany. Among these are low barriers to entry, especially with the market accep- tance of negociant and virtual brands. This creates competition, which drives profit- ability down and leads to many unsuccess- ful efforts. Furthermore, buyers can then ask: Why should I buy your failure when I can create my own? Another structural element: capital intensiveness. When added to low profitability in many instances, the investment required to acquire Chateau John Doe in relation to the returns is pro- hibitive for many potential buyers. Finally, lifestyle buyers are a bigger part of the winery M&A market than they are in, for example, the technology industry. These buyers want to create Chateau Me, which limits the market for some types of brands irrespective of profitability. So what will happen to those sellers that will be unable to find a buyer in the next five years? The data from Wines & Vines tells the story. On average, almost 100 win- eries shut their doors every year. In the end, we find that the U.S. wine industry reflects the vibrancy and risk-taking entrepreneur- ialism of the American culture. It's creative destruction on steroids. These, then, are the realities of the wine mergers and acquisitions market: Because it is such a personally and orga- nizationally complicated effort, for most owners, the sale of their winery will always be "two to five" years out. For others, the first (or even second) sale effort will not achieve a satisfactory result. For those owners, the solution will be the quiet liqui- dation of the brand and the separate sale of the real estate assets. Often, the owners will retain and continue to operate the business. Nevertheless, a successful sale transaction is the single-largest contributor to a winery owner's return on investment. For many, the effort required to find a buyer will be well worth it. Notwithstanding the old canard about large fortunes being turned to small ones in the wine business, the reverse has also been true. Fortunes have been made, and many more will be in the years to come. Carol Collison is a partner in Global Wine Partners LLC, a leading winery merg- ers and acquisitions advisor based in St. Helena, Calif. SIGNIFICANT PACIFIC NORTHWEST TRANSACTIONS 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Maison Drouhin of Burgundy created Domaine Drouhin Oregon Gary and Nancy Andrus of Pine Ridge Vineyards (now the Crimson Wine Group) started Archery Summit in Oregon Lion Nathan bought Argyle Winery in Oregon Crimson Wine Group bought Double Canyon Vineyards in Washington Ascentia Wine Estates bought Washington's Columbia and Covey Run Constellation acquired Columbia and Covey Run wineries in Washington Chalone Vineyard invested in Canoe Ridge Vineyard in Washington Col Solare, a joint venture between Marchese Antinori and Ste. Michelle Wine Estates, founded in Washington Vincor bought Hogue Cellars in Washington (Vincor later was acquired by Constellation Brands) Ste. Michelle bought Erath Winery in Oregon Bill Foley bought into Three Rivers Winery in Washington (Continued from page 95.)