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A close look at the Vintage Wine Estate acquisition path that’s led to its upcoming public offering

Note: Portions of this free article will be available only to premium subscribers who may log-in here:



This is part 1 of a series on the Vintage Wine Estates public offering.


 

The $690 million (ESG) public offering of Vintage Wine Estates could be an escape hatch for winery owners who would like to sell out for reasons of succession, regulatory hassles, distributor barriers to DTC, wholesaler consolidations and other hassles which have made owning a winery less than satisfying.

There are 11,000+ wineries in the United States …

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… and according to Silicon Valley Bank, a substantial percentage  — perhaps as high as 46% — might exit the business if they were offered a fair price:

 

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The actual number may be higher among wildfire weary wineries in Napa, Sonoma and Mendocino Counties.

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While on-the-ground conditions vary according to regions and states, a gross estimate of 46% across all U.S. wineries means that there could as many as 5,084 wineries ripe for picking.

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Even restricting the number of potential acquisition targets to the 9.64% of those likely to sell, leaves  VWE 1,000+ potential candidates.

Obviously, not all of those will meet VWE’s standards. However, it’s clear that there are probably enough for VWE to continue its  practice of making two or three acquisitions per year for a very long time.

“A lot of other distressed wineries and owners are looking at selling, but have not been willing to admit their financial and personal fatigue,”– a private equity investor with previous wine and other beverage industry experience.

Acquisitions baked into VWE’s DNA

VWE CEO Roney is not shy about the place of acquisitions in his overall strategy.

“Why go public? Going public provides us with additional currency to make acquisitions,” he told Wine Industry Insight. “It also provides some liquidity for current shareholders.”

According to comments Roney made in a recent Rabobank podcast (highly recommended listening). Quotes lightly edited for clarity:

“We believe we’ve been the most acquisitive wine company in the wine business over last 10 years having done 20 acquisitions in the space. We continue to believe there’s a lot more opportunity for Vintage Wine Estates to make acquisitions as well as grow organically.”

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“We tend to prefer to take a low profile. While some people know about us, not too many people know we’re the 15th largest wine business in California.”

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Roney led his  podcast hosts —  Stephen Rannekleiv, Global Strategist/Beverages, along with Jim Watson, Senior Analyst Beverages, and Bourcard Nesin, Analyst/Beverages — on a detailed, candid and wide ranging discussion about VWE’s strategy and how the company began as an acquisition vehicle and has not veered from that fundamental principle.

“Vintage Wine Estates was basically started 11 years ago, and we focus exclusively on the $10 plus category of the wine market… our very first winery that we acquired was Girard winery,  and from there we acquired Windsor Vineyards which put us squarely in the direct to consumer market.”

A detailed biography of Roney — including a deeper look at the path leading from Girard to this public offering — can be found at this Forbes profile.

The three-legged stool

“We’ve also grown through a lot of organic growth and built our business kind of like a three-legged stool: We have a very strong direct to consumer component of the business, a wholesale component and a B to B component where we do exclusive labels for major retailers and we also do custom crush for us.

“Over last 10 years we’ve had the good fortune of showing a 20% CAGR growth figure last 10 years on top line revenue and 24% CAGR’
“[It’s been a ] good long run and we’ve done that through a combination of organic growth and acquisitions.”

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Direct to Consumer and the pandemic

In a Feb. 16, 2021 interview with Liz Claman on Fox Business, Roney said:

“Well, we’ve actually grown through the pandemic and we’ve certainly seen some shifts from tasting rooms being shuttered and on premise being closed down, essentially.

“But that really has pivoted to a lot of growth, a lot of pantry stocking and then growth in the major retailers, as well as in the direct to consumer. Particularly, we’ve seen almost a ten-year growth in the category in the last seven months on the DTC side.”

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Above, Pat Roney (l.) and VWE custom bottling client Shark Tank mainstay Kevin O’Leary who sells his wine on QVC among other outlets.

Where do VWE’s acquisitions come from?

Roney told the Rabobank analysts that the acquisitions have come from:

“A combination of wineries with real property and vineyards, some virtual brands — and we made acquisitions directly from owners of businesses. We [also] bought out a prepackaged bankruptcy, and [one] out of  Family Court….”

“We have to thank our banking partners who have allowed us to show this kind of growth.”

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Synergy is a vital part of acquisition: The Ray’s Station example

 To be considered for  acquisition, a property must add synergy to VWE’s three-legged stool model, Roney told the Rabobank analysts, using the bottling process as an example of production synergy. Regulatory efficiencies are also important, he noted.
“We just finished a major capital expansion up at our Ray’s Station Winery in Mendocino. What’s interesting about Mendocino County is that the county doesn’t require use permits so you don’t have to worry about bumping up production capacity.
“We bought Ray’s Station Winery almost 10 years ago and I didn’t even have a dock to bring trucks into for bottling. We started with two docks and added a bottling line. And now we’re adding a fourth bottling line.”
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“We’ve gone from there [Ray’s Station] with really no capacity and now it’s up to 15 million cases of production capacity and bottling. Last year we bottled 7 million cases for our own account plus some of the other companies we bottle for. Now we have the capacity to double that.
“We see that as a real synergy. We also see synergies in supply chain management, purchasing and those kinds of areas. And obviously in the back office, in the G&A  and in the areas where you can consolidate your wholesale sales team and your ecommerce team and your wine club teams.”

Caution: Synergies also need to preserve the character of the acquisition brand.

Many major winery acquisitions have a tawdry history that have destroyed brand quality and loyalty and left millions of angry consumers in their wake.
Among the most prominent brand acquisition disasters are the wreckage of globally ranked cult brands and consumer favorites that are now extinct or simply bottom shelf supermarket plonk in cheap glass and plastic.
These fallen idols include once world class wines such as Matanzas Creek and Arrowood along with names like Mondavi and Beringer whose brand values have been fatally wounded by $4.99 wines carrying their famous name.
Beringer learned the hard way that it was not going to sell very many $100 bottles of reserve Cabernet after becoming the world’s largest source of White Zinfandel.
Roney told the Rabobank podcast that;
“A sense of place in a consumer-facing product front is important to us. Every one of our wineries has their own wine maker and then they’ve got their own grape sources and supplies.
“The farther you go up in the retail chain —  the $20 plus — more of that works for the winery and tasting rooms and sometimes  we keep the current owners of the wineries involved.
“We want to make sure sure that we have a consistent message to all of our consumers about the uniqueness of the various brands.
“And where we can consolidate in value price category the $10 to $15 are not quite as important. Nobody really cares about where the wine gets bottled.”
During the Rabobank podcast, Roney was asked whether having hundreds of millions available for acquisitions will change VWE’s strategy.

[Moderator] “Does  part of the SPAC now change your approach to the next winery? Does it change the process of acquiring the next company other than having the additional capital on hand?”

[Roney, laughs] “You mean that now that  everybody knows we have all that cash and are debt free [some will expect that we will pay more for the acquisition] but [that will not be the case]. We will maintain our disciplined approach and  continue to do two or three acquisitions per year.”
 


Additional Link (premium subscribers only):

Bespoke Capital Acquisition Corp. and Vintage Wine Estates Business Combination Announcement Conference Call – February 4, 2021