Brand without land

Column - Robert Joseph

Robert Joseph
Robert Joseph

In 2010, Agustin Huneeus and his son, Agustin Huneeus Jnr, the principals of Huneeus Family Vintners, stood on the brink of doing something that, on the face of it, made no sense. They were about to buy a California wine brand called The Prisoner. It was just 12 years old, and came with no vineyards, buildings or equipment. What it did have was a price tag of $40m. For that money, they could have had three chateaux in Bordeaux, along with at least 2,000 ha of vineyard.

The Huneeus went ahead with The Prisoner, and this year sold the brand to Constellation for $285m. Not a bad pay-off for six yearsʼ work. 

Some of the basic Bordeaux and Bordeaux Superieur-producing estates they might have bought are still for sale – at prices that are little or no higher than they were in 2010. A casual Internet search would yield plenty of options with 5ha to 10ha that could be picked up for €500,000 to €1m.

The Prisoner sale was nothing new for Constellation. In 2015, it paid $1bn for a beer brand called Ballast Point, and $310m for the Meiomi wine brand, which was also unencumbered by real estate. For more than one experienced observer, spending shareholders’ money in this way smacks of ‘voodoo economics’. It would all end in tears and simply end up proving that the way to make a small fortune in the wine business is to start with a big one. However, it’s worth reflecting on some other recent pieces of famous corporate extravagance. In 2008, Apax Partners, a private investment company, stumped up $1.6bn for Tommy Hilfiger, a clothing brand launched in 1985. Two years later, the brand – without any buildings or factories – was sold to Calvin Klein for $3bn. It looks expensive, until you consider that the 2014 turnover was $6.7bn.

In 2012 Facebook paid a billion dollars in cash and stock for Instagram, a social media platform with 13 employees that allows users to share images. Industry analysts eMarketer estimated that Instagram advertising brought in $595m last year, a figure that could rise to $2.8bn in 2017.

Going further into the stratosphere, Disney coughed up an even more extraordinary $4.1bn for Lucasfilm in 2012. Crazy cash, until you learn that the newest Star Wars movie is expected to rake in $2bn in ticket sales, plus an additional $5bn in Star Wars licensed products – over a single year.

The logic behind all these deals was simple: margin, scalability and the distribution strength of the buyer. Ballast Point was described by Bloomberg as being “on the very premium end of craft beers”, commanding a price of $355.00 per barrel compared to competitors’ $270.00. Sales in 2014 were 123,000 barrels. Over the following year, they more than doubled, bringing in a cool $115m.

The Prisoner sales growth was also impressive, from an initial 385 cases to 75,000 over a dozen years. As was its profitability. While other producers strove to farm Napa Cabernet or Merlot or to purchase grapes at inflated prices, Dave Phinney, The Prisoner’s creator, opted to base his wine on far cheaper Zinfandel, along with Syrah, Charbono and Petite Syrah and some Cabernet, from across the appellation. Even after the resulting blend had enjoyed some contact with high-quality oak, a retail price tag of $40.00 gave him a very nice margin. 

I discussed Constellation’s purchases with Robert Nicholson, whose International Wine Associates business has brokered some of California’s biggest deals. Like Ballast Point, “The Meiomi multiple was no more than 10 times earnings,” he said, reckoning that the new owners should be able to increase sales to a million cases “in a few years”. By which time, it should have “fully paid for [the] purchase.” The same principle, he said, applied to The Prisoner, despite the multiple being higher. “In a short time both deals will prove to have been ‘reasonable’, because of the growth that Constellation can extract from them.”

The sale of wine brands without land is not new; it famously happened in Champagne when Vranken purchased the Pommery brand from LVMH for an estimated $150m way back in 1991. And, as writer W.

Blake Gray pointed out, companies like Gallo and LVMH still see the logic of investing in vineyards. Over the long term, the return on any kind of prime real estate has always been worthwhile. But business, like politics, does not have to be about the long term, and the real estate has to be prime. If I were investing for my kids’ future, I’d still follow the Huneeus’s example rather than that of my friends who invested heart, soul and a lot of cash into a well-known chateau in Listrac-Médoc.



Latest Articles