Before joining Global Wine Partners in 2008, Carol spent over 20 years in commercial banking and finance working with entrepreneurs at every stage of the business cycle. She began working with start-ups as an SBA consultant to commercial banks, then worked in community banking with growing businesses, and finished her commercial banking career in middle-market lending to the wine industry. Now at GWP, she works with entrepreneurs at the final stage of their business: assisting them with a successful exit.
In April, GWP published Part 1 of this blog on winery transaction values, outlining a few of the reasons why the commonly referenced
“EBITDA multiple” is not terribly predictive of what a winery owner might sell their company for in an actual transaction. The ultimate
message of that piece and this one is that the real-world drivers of value in a transaction relate to the intersection of a seller’s brand
attributes (growth, profitability, product category etc.) and the needs of the buyer. Any one or more “multiple” of financial performance
will not determine a price.
There is often talk in wine business circles about the “EBITDA multiple” describing the valuation of a company after an acquisition is announced.
However, this multiple may be irrelevant with respect to what drives the final transaction value when negotiating an actual sale between two parties.
Commonly a 10X EBITDA multiple is talked about as “average” in today’s market. So, if you own a winery with “Earnings Before Interest, Taxes,
Depreciation and Amortization” equal to $1MM, your company will sell for $10MM, right? Maybe, but probably not.
A lot of quality transactions have been announced in the last 18 months. All the big players: Gallo, Ste Michelle, Jackson Family and many more
have acquired high-profile brands. This naturally raises the question in the minds of winery owners: Is this a good time to sell?
There are almost 9,000 bonded wineries in these United States. Yet, approximately 90% of the wine consumed in the US last year was sold by the top 10
companies. This means that the American wine industry is principally made up of very small wineries selling locally produced wines directly to customers
in their communities. In other words, winery owners are small business owners.
A friend of mine and I were exchanging e-mails a few weeks ago about the mounting financial difficulties of Robert Dahl, the winery owner who became famous
last week for murdering one of his investors in a vineyard just south of where I am sitting. My comment then about the people who create these types of financial
disasters was, “it’s sometimes hard to distinguish between the stupid and the corrupt.” I think we have our answer now with regard to Mr. Dahl.
There is a widely held perception in the wine industry that merger and acquisitions (M&A) activity is currently
quite robust, and that selling their wineries is how owners will exit the business.