Tuesday, June 24, 2008

Bacchus plans to have around 8-10 portfolio wine companies

A-B "Limited" Partner with Winery Investor

Recent buying sprees of U.S. wineries and increased consumption among consumers has resulted in a wave of investment funds specializing in the wine business. And just in the nick of time as family-owned wineries are preparing to hand the business off to the next generation. Coincidence?

Here enters Bacchus Capital Management, a winery investment firm based in San Francisco, that formed last year by Seagram heir Sam Bronfman II and partners Peter Kaufman and Henry Owsley of the Gordian Group.

Gordian is known for its efforts to guide companies through restructuring and back to health, including Spiegel, Smithfield Foods, and, more recently, Summit Global Logistics, according to an article in The New York Sun.

One of their first ventures has been to launch a fund that will provide mezzanine capital and, to a lesser degree, private equity funding to wineries "maxed out at their banks," says Kaufman. Bacchus is prepared to lend at four to eight times earnings before income taxes, depreciation, and amortization, compared to banks who typically will only lend up to three times EBITDA. Most acquisitions in the field fetch prices as high as 12 to 18 times EBITDA.

In addition, Bacchus plans to have around 8-10 portfolio wine companies in the initial phase of the fund.

It has been well documented that most family-owned wineries are facing the challenge of how to pass the business onto the next generation without losing control. Silicon Valley Bank's survey last month said 51% of family-owned wineries are anticipating a change in ownership by 2017. So, expect a lot more companies like Bacchus in the next couple of years.

Kaufman and Owsley can help wineries pass their business to the next generation, while Bonfman and recently hired colleague Mike Jaegar are proficient at running wineries and promoting brands. Recall that Jaegar is a former Constellation and Vincor USA senior exec, who became Bacchus president and coo in April.

ANHEUSER-BUSCH LIMITED PARTNER. Bacchus has also signed Anheuser-Busch as a significant limited partner. A-B is contributing money, a full-time employee (senior exec Keith Wesselschmidt) and use of its distribution system. Distribution is key since most wineries (96%) sell less than 100,000 cases a year and often have a difficult time gaining distribution through wholesalers.

"The key to success is distribution. There are only about 10 national distributors that matter, and a lot of wineries can't get distribution. Sam Bronfman is extremely conversant with these organizations and can be incredibly helpful. Worst case, some can game the system and make an end-run around the distributors, going through Anheuser," said Kaufman in the article.

According to The Sun, Kaufman says he's not sure how Bacchus's arrangement with AB might be affected by an anticipated bid from InBev.

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