Silver Oak snags Ovid as wine mergers are booming

on Apr21

Source: Silicon Valley Bank

Silver Oak Chief Executive David Duncan said he’s bought up more than a dozen vineyards over the past few years, trying to stay “ahead of trend.” His latest acquisition of Ovid, a Napa Valley “cult darling” known for its Pritchard Hill Bordeaux Blends and Cabernet Franc, is estimated to come with a $50 million price tag, according to an industry source who spoke to CNBC. In this deal, Silver Oak will take over Ovid’s 70 sought-after acres of vineyard land in California.

“There have been a few waves in the M&A space,” Duncan told CNBC in an interview. “One was in the pre-recession, post-dot-com bubble, and now it seems like there is another wave happening.”

Since the 2008 Great Recession, the value of vineyard land has climbed significantly, making it particularly lucrative for owners to begin to ‘sell out,'” Eric Schmidt of Beverage Marketing Corporation told CNBC in an interview.

“Interest rates are still on the favorable side,” Schmidt added. And demand is not only coming from U.S. buyers, he’s seeing more and more interest from global investors. “It’s like we’re selling our own stock.”

Schmidt tracks beverage consumption trends closely and said with wine he’s noticed a strong shift in patterns among millennials, who aren’t as “brand loyal.”

“Millennials are more [about] discovery, looking for new things,” Schmidt told CNBC. “With them, there’s nothing tried-and-true, but it’s just what’s top and new, and what’s off the beaten path.”

Wineries are responding to this changing consumption pattern as well as the slump in baby boomers’ buying, fueling increased M&A activity, Silver Oak’s Duncan explained.

“Following Napa, the next hot area is Oregon,” he said. Buyers looking into that market hope to maintain control of key properties and make sure they have the resources needed and are ahead of the curve on technology, Duncan added.

Duncan’s father, Raymond Duncan, founded Silver Oak in 1972 and has been scoping out land to acquire ever since then, the current CEO said, no matter the size nor value, so long as it would help the business make “more, better wine.”

“Speaking to people who work in the financial world, in the scheme of Wall Street, wine business is teeny … people don’t care about the dollars,” Duncan explained. For example, a $10 million transaction is a “big deal” in the wine world but often transpires unnoticed by investors, he added. “It’s sort of a funny thing.”

Nevertheless, Silicon Valley Bank’s McMillan has predicted: “If the stock market is indeed a leading indicator, the economy looks like it’s readying to make a positive move in 2017. That will be reflected in growing wine sales once again.”

His report called 2016 a “banner year” for M&A in the wine business, with many “eye-catching property transactions” still left on the table today.

“Companies like Constellation, Gallo, Diageo and Jackson Family Wines might have dominated transitions in past years … [today] they are joined by medium-sized players such as Huneeus Vintners, Crimson Wine Group, Foley Estates, Vintage Wine Estates and Chateau Ste. Michelle, each of which is looking for strategic acquisitions in the premium segment along with better production efficiencies.”

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