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REAL ESTATE INTERVIEW 64 WINES&VINES September 2017 R obert Nicholson is a longtime player in the world of wine industry mergers and acquisitions, but he considers himself "first and foremost, a wine guy." Nicholson, who grew up southwestern England and studied enology at the University of Bordeaux, got his first wine job in 1972 as assistant to the export director of Louis Eschenauer in Bordeaux, where the company owned Chateau Rauzan-Segla and Chateau Smith Haut Lafitte, among others. From there, he went to work for Seagram's, then became vice president of Christian Brothers in the Napa Valley. After the winery was sold to Heublein in 1989, Nicholson de- cided to set up his own business. Nicholson founded International Wine Associates in 1990 as a wine industry consulting firm. Heublein asked Nicholson to help the company sell some assets in the Napa Valley, includ- ing the Greystone building that had been home to Christian Brothers (sold to the Culinary Institute of America) and the Oakville winery that's now Napa Wine Co. "That's how we started in M&A," Nicholson says. International Wine Associates (IWA) has completed more than $1.5 billion in transactions to date (more than 60 separate deals, including prominent wine estates and more than 5,000 acres of vineyards) in California, Washington and Oregon. IWA usually represents sellers and has worked with large multina- tional companies as well as small family-owned businesses. Q International Wine Associates mostly represents sell- ers. Why? Robert Nicholson: That's simply our preference. This allows our company to work with our clients from the beginning to the end of the transaction pro- cess. We take the time to get to know the sellers personally and to understand their businesses and what they want to achieve in a transaction. Our transaction process at IWA is highly personalized and confidential. Some steps we take with all our clients are the same; however, each project is very different. Generally, this personalized transaction process includes first understanding the business thor- oughly, valuing the different com- ponents of the business in order to help the sellers with realistic value expectations and help the seller to understand what the buyers are looking for in a transaction and how the process works. We assist our clients and their counsel throughout the process. Winery valuations are based on brand scale, cash flow and margins, future volume potential, synergies for the buyer in their sales, marketing and production, and product types and origin. Brand strength is a combination of current margins, volume and the potential of the business for the buyer. Syner- gies are the savings that will accrue to the buyer post-close, giving buyers the option to use their own current resources more effectively in the acquisition of a business. Q What are the reasons individuals or companies de- cide to sell? Nicholson: As you can imagine, there are lots of different reasons why people and companies decide to sell their businesses. Take family businesses: Sometimes a founder has developed a business, and then when the founder wants to retire, and other family members are not in a position to or don't want to continue managing the business. This can be a difficult decision for a small business. It is IWA's role to understand their objectives and to advise them accordingly. It can be challenging for the owners, as IWA makes them aware of the different steps required to ac- complish a smooth transaction at an acceptable market value. Over the years, IWA has represented a number of prestigious family-owned wine estates for sale, including the Ladera Vine- yards sale by the Stotesbery family to PlumpJack in 2016, the Talbott Vineyards sale to Gallo for Robb Talbott and his children in 2015, the Klipsun Vineyards sale on Red Mountain in Wash- ington to Terlato in 2017, and the Hogue Cellars sale by Mike Hogue and his family to Canada's Vincor Group in 2001. With partnerships, sometimes the partners in a business decide for their own reasons that they want to sell. This requires sensitive handling of the situa- tion by IWA to achieve the different objec- tives of all the stakeholders. IWA has worked with a number of partner- ships in the sale of their businesses, such as Beaux Freres Vineyard in Oregon, which was owned by Robert Parker and his partners. Beaux Freres was sold to the French group Maisons & Do- maines Henriot earlier this year. One of the original partners wanted to stay on with Beaux Freres to manage the business and as a shareholder with Henriot. This worked out well, because Hen- riot was pleased to have him con- tinue with Beaux Freres. IWA has also represented a number of the world's largest listed wine companies in selling various brands, assets and businesses. A CONVERSATION WITH Robert Nicholson A prominent deal-maker discusses the mergers and acquisitions climate By Laurie Daniel