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January 2018 WINES&VINES 147 BUSINESS berating effect on M&A activity. Gallo's acqui- sition of Stagecoach Vineyard in early 2017 was notable not only for its size, but because of its potential impact on the ultra-premium Bordeaux-variety grape market. Though Gallo has committed to honor all existing contracts with the more than 90 wineries that had been sourcing fruit from Stagecoach, as those con- tracts run out, Gallo will most likely utilize the grapes to grow its own brands. Given the extremely limited supply of comparable vine- yards, the outgoing wineries will be forced to become more aggressive in securing replace- ment fruit, which will likely lead many to pursue an acquisition strategy in order to lock in long-term supply. Anecdotal evidence of Napa vineyard transaction activity immedi- ately prior to and following the Stagecoach announcement suggest that the market im- pact of this dynamic may be significant in terms of vineyard pricing. Wineries also face competition from inves- tors outside the industry, as the long-term track record and future growth prospects for U.S. premium wine pose a compelling invest- ment rationale for agricultural investment firms that typically operate on 10- to 20-year timeframes. Within the past 12 to 24 months, the industry has seen an increase in the num- ber of institutional investment funds making acquisitions of premium vineyards, notably in premium winegrowing areas such as the Oak Knoll and Oakville AVAs in the Napa Val- ley, as well as in Sonoma County, Santa Bar- bara County and Oregon. This trend is likely to continue as each of these investment groups seek bolt-on acquisitions in order to achieve greater economies of scale. What does this mean for 2018? Momentum continues to be strong for wine industry M&A activity, thanks to a healthy economy and a sustained period of growth in premium U.S. wine consumption. How- ever, there are growing concerns that the wine industry (and greater beverage alcohol sector) may be experiencing the beginnings of a change in consumer behavior. Recent Nielsen scan data reporting among the fast- est growing beverage alcohol categories (premium wine, premium spirits and craft beer) show tapering growth in the past six to 12 months (see "Rolling Year-Over-Year Dollar Growth"). Additionally, while the U.S. wine market remains the largest in the world and continues to grow in total consumption, per-capita intake in the United States has slowed significantly since 2010. If these cautionary signs persist into 2018, then this may create a dampening of the high investor confidence which has characterized the cur- rent M&A cycle. Regardless of what happens in 2018, consolidation momentum within downstream sales channels is unlikely to change in the near future, and barring any major disruptive antitrust, legislative or technological advances, its effects will likely continue to be a driving factor of deal activ- ity in the coming years. Cody Jennings is a senior vice president with Zepponi & Co., a Santa Rosa, Calif.-based merger and acquisi- tion advisory firm specializing in the beverage alcohol industry. Zepponi & Co. has been one of the most active firms in the industry and served as an advisor in several major transactions. For more information, visit zepponi.com. Larger wine companies that have better, more robust representation of specific appellations and varietals have become more attractive to larger distributors. provides comprehensive and cutting edge technology solutions for Equipment upgrades Preventive maintenance Technical assistance On site parts www.mbfnorthamerica.com