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MANA GEMENT types of agreements need to be formalized before undertaking a sales process, or a buyer will not give them value. Trademarks and permits: Oftentimes trade- marks and permits are overlooked, but having a flaw in either can derail the sale of a winery. Each trademark and permit should be reviewed to make sure each is current and valid before considering a sale. Estate and tax planning: The final phase of a sale is not the time to try to gift shares to offspring, nor is it the time to try to move assets between companies to minimize taxa- tion. These items should be reviewed with an estate planner before the sale is initiated. Identify assets to be retained: Many sellers will want to keep a small brand (perhaps one that has a family name) or a vineyard. Each seller should review the assets owned by the company and decide ahead of time which ones he or she intends to keep. Retaining these assets can have an economic impact on the transac- tion, so each decision should be discussed with an advisor beforehand. Post-close plans: Each seller should de- vote considerable time to thinking about what they intend to do after selling. If the seller wants to stay in the business or even stay involved with his or her winery after a sale, then that should be considered up front so the winery offering can be struc- tured in the right way. Not every seller has to sign a non-compete agreement, but we find that an early discussion of these issues helps to clearly define the param- eters of such an agreement and helps to smooth the transition process. Setting a value As winery owners try to decide whether they have taken their brand and assets far enough or whether there is more work to be done to build further equity, one of the most common questions we get asked is, "What's my winery worth?" We are frequently asked to value wineries and brands, most often when the owners are preparing for a sale in the near future. Although the process and metrics of valuing wineries is often talked about (particularly when a signifi- cant deal has just taken place), it is quite often misunderstood. The following explanation will detail the winery-valu- ation process and clear up the potential confusion that sometimes exists around wine industry deals. A number of methods are used to value businesses, and although this is a brief outline of several of them, it is but a frac- tion of the total information and analysis ? ? Who the winery buyers are E very month the market for premi- um wineries is improving. Buyers recognize that as the economy im- proves and the oversupply of grapes and bulk wines continues to dry up, values for some wineries will increase to historic lev- els, if not higher. Winery buyers today can be grouped into five categories: Strategic companies: Large, often multi- national and publicly owned wine and spirits companies with large investments, efficient operations and the ability to pay high prices due to the synergistic enhance- ments they can bring to an acquisition (low supply costs, greatly improved dis- tribution). Of late, some of these compa- nies have been sellers rather than buyers. However, we are seeing renewed interest from some of these companies for specific opportunities and expect some sizeable transactions in the next 12 months from some in this group. Private groups with multiple wineries and brands: These groups own more than one winery and seek to add to the portfolio, typ- ically in a very focused way: by adding spe- cific brands, varietals or geographic regions that are not currently in their portfolios. Foreign buyers: We have recently seen in- creasing interest from Europe and Asia— particularly China, but also India, Korea and Japan. While selling to a foreign buyer often sounds more lucrative, the regula- tory hurdles and cultural challenges dur- ing negotiations can make such a deal dif- ficult to complete. High net-worth individuals: Those who aspire to a second career in the wine busi- ness will seek luxury properties in the wine country. These buyers are often less inter- ested in acquiring an existing brand, but rather seek to develop their own brand— often with their name on it. Such buyers tend to seek premium estates with smaller production, estate homes, caves and other luxury property improvements. Higher vol- ume or lower priced brands are seldom at- tractive to this group. Private equity firms: Although PE firms have made several prominent invest- ments (Duckhorn and Ascentia, most notably), they have since been mostly window shoppers without making signifi- cant further investment. While they have been somewhat effected by the lower levels of debt leverage available since 2009, we expect them to become active again with some large transactions in the coming year. R.N. & J.G. Wines & Vines JAnUARY 2012 77