Issue link: http://winesandvines.uberflip.com/i/562166
42 WINES&VINES September 2015 FINANCE BRODY: I think the availability of private equity is as high as I have ever seen it. Certainly some notable acquisitions have been made, but these deals tend to have a long ges- tation period. Sellers are expecting high multiples, and the smart buyers are making sure that EBITDA trends are sustainable and multiples have some basis in reality. There simply are not enough "high-roller" inves- tors that fall in love with a property/ brand and will pay any price. DAY: The M&A (mergers and acqui- sitions) market is healthy. We've seen a number of deals across a fairly broad spectrum. Whereas the early years of the recovery really seemed to be large, healthy wineries focusing on vineyard acquisition to solidify sourcing, the focus has now ex- panded to brands and production fa- cilities. There are some new buyers, but at the end of the day, the M&A market still seems to be defined by the bigger guys getting bigger. We are still seeing investment firms—both private equity and institutional—in- terested in the sector, but it's not an industry that historically fits well with their investment parameters. BISHOP: There have been a num- ber of acquisitions, consolidations and expansion projects over the past year. Many have been by financially strong wineries, so credit has been readily available. However, there still remains opportunity for niche brands, creation of new brands and expanded crushing/processing ca- pacity due to the large crops from the 2012, 2013 and 2014 vintages. HINDE: There have been several in- teresting sales in 2015; I expect to see more sales in 2015. Domestic buyers wanting to expand, move into new price points, varietals or geogra- phy are buying more vineyards and wineries. With bond returns still ex- tremely low, trouble in the European markets and uneasiness with stock market valuations, there is a lot of capital flight coming into the United States in addition to domestic capital looking for better risk-adjusted re- turns. Napa and Sonoma County vineyards and wineries have and will continue to attract some of this capi- tal looking for a home. Generally speaking, these macro trends will po- tentially drive prices and cash flow multiples buyers are willing to pay higher than in previous years. McMILLAN: M&A has continued at a torrid pace in the past few years due to: • Evolution of wine from a cottage business to one with serious invest- ment requirements and returns. • Owners who started businesses in the past 20 years who need a transition in ownership. • Trading up to higher priced wines has larger wine companies look- ing for investments. • Low interest rates spurred the overall M&A and IPO markets. • Growth has wineries seeking good acreage. Many are looking to Paso (Robles, Calif.), Oregon and Washington for production. Vineyards without homes are in high demand in the North Coast (of California). OVERALL Have any players (banks, financiers, private equity, etc.) changed? DAY: There are new lenders taking baby steps in the market to test the waters, but they probably won't last. It's hard to bank the industry if you don't have a dedicated team and un- derstand the nuances of the many variables to the market—from har- vest volumes to issues in the three- tier system. Some of the new entrants will inevitably make a few poorly structured deals, get burned, and then decide to exit. We will see a couple larger equity deals done with private equity firms, but those are going to be on the larger side, given the economics behind the pri- vate equity market. BISHOP: Private-equity firms al- ways show interest but sometimes become challenged when they ana- lyze the capital investment and re- turn models of the sector. There are always the one-off examples of PE firms looking for a trophy brand/ property that may not be justifiable on a cash-flow basis but may in the long run have significant capital appreciation. BEAK: There's definitely been more interest in the space. There are some historically big banks that haven't been in this business before wanting to get involved. We're also seeing smaller banks in the Central Valley taking an interest, and definitely more private equity and wealthy folks wanting to be in here. BRODY: Pretty much status quo al- though perhaps an increased appetite. HINDE: The effects—both intended and unintended—of ZIRP (zero in- terest rate policy) and Frank Dodd will continue to drive bank mergers and acquisitions nationwide. The for- mation of new lenders coming into the wine industry has been sparse in this cycle versus the past up cycle for the above-mentioned reasons. The regular wine industry lenders that are present in both up and down cy- cles are still here. Most of the fair- weather lenders have been active for the past couple years, given the health of the industry, which is nor- mal and what you'd expect to see at this stage of the cycle. "Whereas the early years of the recovery really seemed to be large, healthy wineries focusing on vineyard acquisition to solidify sourcing, the focus has now expanded to brands and production facilities." CHARLES DAY, RABOBANK ADAM BEAK is senior vice president of Bank of the West and the man- aging director of the North Coast Agricultural Banking Center/ Premium Wine Group in Napa, Calif. Beak oversees all winery, vineyard and wine industry-related business for Bank of the West. MARK BRODY 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, where he leads the Wine Specialty Group. Brody was CEO and gen- eral manager of Cline Cellars in Sonoma, Calif., from 2001 to 2003 and founder of the Wine Advisory Group. ROB McMILLAN is executive vice president and founder of Silicon Val- ley Bank's Wine Division, based in St. Helena, Calif. McMillan 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 in par- "There are always the one-off examples of PE firms looking for a trophy brand/property that may not be justifiable on a cash-flow basis but may in the long run have significant capital appreciation." WILLIAM BISHOP, BMO HARRIS BANK