Bankruptcy Sparks Wine Asset Rush

The recent bankruptcy of Vintage Wine Estates (VWE), a prominent player in the California wine industry, has sparked an unexpected surge of interest in its assets. While the financial difficulties faced by the company may suggest a struggling sector, the reality is more nuanced. The strong demand for VWE's wineries and brands highlights the enduring appeal of California wine, even amidst challenging times. This scenario underscores the robustness of the broader California wine industry, despite VWE's missteps in its aggressive expansion efforts.

The sale of winery assets through bankruptcy proceedings is not a novel occurrence in the wine industry. One of the most famous examples is the case of Charles Shaw, widely known as "Two Buck Chuck." In 1995, Fred Franzia purchased the brand for a mere $27,000 at a bankruptcy auction. Initially, there was skepticism about the brand's potential, but Franzia's strategic approach transformed it into an exceptionally profitable venture.

In the current situation with Vintage Wine Estates, the company's assets are drawing significantly higher bids. Jay Adair, a Dallas-based entrepreneur known for his success in the online used car market, has made a $35 million offer for two Napa Valley wineries, Clos Pegase and Girard. This amount represents the "stalking horse" bid, essentially setting a floor price for these assets, indicating that the final sale price could potentially be much higher.

Additionally, Total Beverage Solution, a South Carolina-based import company, has expressed interest in acquiring two of VWE's lower-cost California wine brands, Layer Cake and Cartlidge & Browne, along with a mid-priced Washington brand, Tamarack, for $6.03 million. As with Adair's bid, this offer could be surpassed in the auction process, further emphasizing the ongoing value of these brands.

The interest shown by Total Beverage Solution in these Californian brands highlights the intrinsic value they continue to hold, even in uncertain times. Although Total Beverage Solution already owns several brands, including Big Red Monster and Skyfall, the reputation and legacy of the Californian brands they seek to acquire present a significant allure.

Vintage Wine Estates still holds a portfolio of well-established brands that remain on the market, including Qupé, B.R. Cohn, Cameron Hughes, Cosentino, Kunde, Swanson, and Viansa. In the coming days, it will become clear how much other companies are willing to pay for these assets.

The California wine industry faces substantial challenges, as evidenced by the recent annual Direct to Consumer (DTC) report released by Sovos ShipCompliant. The report showed a 6.5% decline in wine bottle shipments, marking the second consecutive annual drop. California wineries have not been immune, with shipment decreases of 4.7% in Napa County, 9.6% in Sonoma, and 8.6% in the Central Coast. Notably, only Washington saw an increase in direct-to-consumer sales.

Despite these obstacles, the sale of VWE's assets underscores the enduring attractiveness of the industry. Rob McMillan, Executive Vice President of the Wine Division at Silicon Valley Bank, noted that the interest in Northern California's winery properties should not come as a surprise, given the region's global reputation for producing high-quality grapes.

Wine industry analyst Mike Veseth, known as The Wine Economist, remarked that while current market conditions—characterized by stagnant demand and oversupply—might seem unfavorable, investing in a California winery could be a compelling opportunity if the business is sound and the investor is prepared to wait for the market's recovery. Veseth emphasized that the key lies in identifying those wineries with a promising future, even in the face of economic uncertainty.

The bankruptcy of Vintage Wine Estates, rather than signaling a collapse in the industry, highlights the persistent value of California's wine brands and properties. It suggests that even in tough times, the wine sector remains fertile ground for investment and growth. As the market adjusts and recovers, the underlying strength and appeal of California wine will likely continue to draw interest from investors and wine enthusiasts alike.