PE firms' investment in wineries more of passion than business?

July 15
4:48 AM 2013

Several private equity firms are making investment in wineries. These investments seemed to contradict these investors' expectation of a swift return. "The short time frame from investment to sell off expected by most private equity investors doesn't always work in the wine industry," said Mario Zepponi, owner of Zepponi & Company. The company provides advice on mergers and acquisitions in the wine industry.

"This kind of sale is a familiar tale in wine country today," said Mario Zepponi, owner of wine industry merger and acquisition advisory firm Zepponi & Company. The Silicon Valley Bank's State of the Wine Industry 2013 report backed Zepponi's statement. "More transitions, sales and mergers are taking place than at any time in memory," the report said.

Golden Equity Investments invested in Napa's Goosecross Cellars last May. Bacchus Capital Management acquired Oregon winery Panther Creek. The PE firm also invested in Washington State's DeLille Cellars. Both deals happened in May and brought the total number of such deals to nine. Terroir Capital invested in two wineries in California including Sonoma's Wind Gap.

"It's a passion play, not a business play," said Charles Banks of Terroir Capital LLC. Banks bought the Mayamas winery last April from Bob Travers, who has owned the winery for 45 years. "Mayacamas isn't part of Terroir Capital's portfolio. That only invests in things with a clear path to profitability. Mayacamas will never achieve a reasonable IRR (internal rate of return)," said Banks.

However, Elin McCoy of Bloomberg Businessweek seemed to think that winery deals such as the Mayacamas could have been made for the possibility of creating a real estate business out of the beautiful and scenic landscape. "The profit maker in the Mayacamas deal may be the real-estate possibilities. Eventually, non-vineyard acres could be developed for residential properties," said McCoy.

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