Announcements -- or rumours -- of the sales of prominent French and Italian wine estates seem to be hitting with increasing regularity. The table below lists the recent sales and rumors with which I am familiar.
Recent Actual and Rumored Sales of Estates of Significance
|Deals||Region||Estate||Size (ha)||Purchaser||Purchase Price||Acquisiiton Year|
|Krause Holdings||€50 million+||
|Krause Holdings||€6.1 million||
|Burgundy||Bonneau du Martray||
|Clos de Lambrays||
|Loire Valley||Clos Rougeard||
I have previously written on the Vietti sale (and its potential implications) and Voerzio rumor and some of the factors that are potentially driving this wave. In this post I would like to highlight some of the things learned as a result of this spate of activity.
First, these deals take time. According to Jacopi Biondi (Decanter, January 5, 2017), the talks with EPI for the acquisition of the majority of the shares of Tenuta Greppo took 6 months. This leads to the conclusion that the Vietti sale had been in the works long before its actual announcement. It also leads one to speculate that there are discussions currently underway which will lead to future sale announcements.
Second, most of the sales transfer majority ownership to the acquirer, leaving some ownership (and upside potential) in the hands of the former owners. As both Antonio Galloni and I have pointed out, the lack of retention of any ownership by the Vietti family is one of the troubling aspects of their deal.
Third, buyers are aiming for the most prestigious estates in the region. That is, they are not seeking to gain a foothold in the region by buying underperforming assets and building them up. They are after the highest value estates and paying top Euro, thus driving up the value of all market players. This gets to the motivations of the buyers. In the case of LVMH and EPI, their acquisitions are focused on brand-building. And not building the brand of the acquired companies (although this may result), but extending the brand of the parent company as a purveyor of luxury goods. By acquiring these properties LVMH and EPI are able to cross-sell their luxury brands to a wider customer base and to increase the prices of the acquired products as a result of the cachet associated with the brand. I address the motivation of someone like Kroeneke in the below while I think that Krause truly wants to build a franchise in Piemonte.
Fourth, in this new environment, winemaking could become more a value-retainer than a raison d'etre. With the prices being paid for these luxury estates, the investment will not be recouped by the sale of wines. Players like Kroeneke have a very good understanding of the sports-franchise business model. In this model, you can never pay too much for the product as the new purchase price sets the industry floor. As a participant in that industry, all you have to do is to maintain the value of your franchise, hold that franchise operationally profitable for X number of years, and then capitalize on a sale sometime down the road. In this case, the value of the estate to the owner is not the wine that it produces today. Rather, it is the value that it will yield in the sale tomorrow.
Fifth, family-owned estates cannot compete in this acquisition market.
Sixth, conditions are ripe for more deals of these types. Buyers are motivated and sellers are torn. In the case of France, the difficulties of paying the inheritance taxes on these estates are well known. It is much simpler for a family to transfer assets to the upcoming generation as part of a payout on a sale rather than as a transfer upon the death of a p(m)atriarch. In addition, the economics are heavily tilted to selling if you are a family in Barolo, for example. If you use Vietti as a case in point, Luca could theoretically invest the family's €50 million at 5% compounded and in 10 years would have €84 million in hand (One would expect that his daily needs would be met by the salary he will now be drawing as the leader of the Krause Barolo holdings.). Try as he might, Luca would not have been able to approach those types of returns for his family by continuing to operate Vietti as a family holding. These operators are torn between upholding tradition and cashing in in a real big way on the works of the generations that have gone before.
Further, if the industry is becoming a real-estate play, and you are a viticulturist/winemaker, then you are miscast. You are not truly equipped to play in that game as an owner (and may not be motivated to) so why not cash out.
Seventh, in the majority of cases, the acquirer is retaining the services of the current operator. In the Vietti acquisition, Luca has been retained as the CEO while Jacopi and Tancredi Biondi will oversee vineyard operations and winemaking and serve as brand ambassadors for Biondi-Santi. In the latter case, EPI will have control of the business point of view. In the case of Clos de Lambray, LVMH retained the services of its longtime chief winemaker Thierry Brouin, the architect of the previous 35 vintages of the estate's wine. BdMs current Estate General Manager, Jean-Charles Le Bault de la Morinière, is the exception to this trend in that his position will be taken up by Armand de Maigret, the French general manager for Mr. Kroenke’s vineyards, after a "suitable" period of time.
Eighth, given their prestige, and the motivations of today's buyers, I predict future acquisition activity in the Cote-Rotie and Champagne regions, in addition to ongoing activity in the regions currently under "siege."
©Wine -- Mise en abyme