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?
Most winery owners believe that the most important factor when considering a sale of their winery is market timing, i.e., timing a transaction to occur when the market for wineries is favorable. This sounds good in theory, but it requires predicting the future, which of course is fraught with peril.
In the many years that our firm has been engaged in selling wine companies, we have operated in every type of market. We launched a sale effort of a prestige company when the winery M&A market was at a high point and the bidding resulted in a record- breaking price. Due diligence was then completed and the closing was scheduled for October 31— which unfortunately fell just after the financial meltdown of 2008. As a result, the buyer pulled out and the sale did not close.
Conversely, shortly after that transaction terminated, but now at the depths of the “Great Recession” — the low point for winery sale transactions — we launched another sale process. This winery sold at a very high price, despite the terrible market timing, first because the business was a successful operation at a strategic inflection point with great future potential, and second because, before the sale effort was launched, the winery was fully prepared for sale and therefore positioned for maximum value to the buyer.
In both examples, the results occurred despite current market conditions – not because of them. The lesson from this consistently inconsistent pattern in history is clear – sales are made, not timed.
The length of time required to decide and prepare to sell, conduct a sale process, find a buyer, negotiate and close a transaction is such that the market conditions at closing are almost always different than at the beginning, or even the middle of the process.
On the other hand, there is no bad time to plan and prepare to sell, so that you’re ready when the time comes to launch a sale process. Proper preparation is critical to success and takes time – much more than one usually imagines. This preparation includes considering the best timing for the individual circumstances of the winery and its owners, which is far more important than more general market considerations.
There are certainly bad times to launch a sale effort, which more often depends on a winery’s individual circumstances. While the current transaction market reflects robust wine sales and buyer optimism, the only thing that we can predict about the transaction market tomorrow is that whether for better or worse, conditions will change.