Is the Tide Finally Turning?

Sales of B.C. Estate Wineries Finally Flowing

This article was previously published in the summer issue of Grapes to Wine and has been reproduced with permission.

Back in 2010, I was asked to look ahead at the trends I saw developing over the next decade in the B.C. Wine Industry. One of the trends I expected to see, based on sheer demographics alone, was a growing number of B.C. wineries changing hands as the founding owners looked towards retirement and an exit strategy. Here’s what I wrote on that subject seven years ago:

“Demographics tell us that there will be a significant changeover in both land and winery ownership in the coming decade. There will be opportunities for both domestic and international purchasers to gain a foothold in the B.C. Industry. The wine business is capital intensive and raising funds to purchase or lease land will be a priority for those wineries intent on growth. While we don’t necessarily see any wineries going public a la Robert Mondavi, we do see growing opportunities for private investors eager to own a piece of a B.C. winery or vineyard.”

Well, it took a while, but I think we are finally there…

Back in 2010, we were mired in a deep recession and many Canadians were forced to put their retirement plans on hold. Winery owners were no different. Most were in survival mode as debt increased, consumer demand slowed and land prices declined.

Over the next couple of years, it became a buyers’ market and there was no shortage of rumours and speculation, but precious few actual deals.

Coming out of the recession around 2012, the hot topic became the growing amount of Asian and Asian-Canadian interest in acquiring B.C. wine, wineries and vineyards. Every owner you talked to could tell stories of unsolicited visits and interest from abroad. Enthusiasm turned to skepticism as all the talk translated in to very little action. Eventually however, there were some real transactions. Bench 1775, Lang, and most recently Phantom Creek are all examples of B.C. wineries and vineyards acquired by new Asian Canadian owners that appear to be working out quite well for both buyers and sellers.

Domestic interest seems to finally be catching up as well. North American consumer confidence is on the rise again. Land prices have reached and, in some cases, surpassed pre-recession levels and investor interest has returned. It can even be argued that the collapse of oil prices in Alberta has had some positive effects on the B.C. wine industry. The last two years has seen lots of wine tourist visits from Alberta, and even indications of investment dollars looking for a safe-haven outside the oil patch.

Unlike public companies, when private businesses change hands, details are usually few and far between. There are often not a lot of announcements or fanfare. However, if I can extrapolate the level of transaction activity from MNP’s own B.C. wine industry business advisory practice, buying and selling activity definitely appears to be on the upswing. In the last 10 months alone, we have assisted on the purchase of four wineries and the sale of another. All of these purchasers come from Western Canada and are new to the wine industry. And all seem to be looking for a change and new direction from already successful business careers.

The B.C. wine industry is quite young if you consider the 1989 mass pull out of older varieties and replacement with quality vinefera vines to be the real starting point for the modern era. In 1990 there were 17 licensed grape wineries in B.C. and today there are over 275. During the same timeframe, the number of planted vineyard acres in the province has grown from approximately 1,500 to over 10,500. Most experts agree that virtually all of land well suited to growing quality wine grapes has now been planted. It seems there has never been a shortage of people attracted to this unique industry. The difference that in now emerging now is that, for the first time, it has become easier to enter the industry by purchasing an existing winery, vineyard and brand than by seeking to start from scratch.

This is good news for current owners who are now facing what I call the “3 S’s decision” – succession, sell or shut down. It means “sell” is becoming an increasingly viable option. But bear in mind there are plenty of other winery owners thinking the same thing.

It’s also good news for the new breed of buyers - there are lots of options out there. But more importantly, there is an opportunity to buy an already profitable business instead of starting from nothing and waiting upwards of 6 to 10 years for any real profits – the path that many current owners had taken.

There’s no question that the days of lots of talk but no deals are over and the number of completed transactions is on the rise. When it comes to B.C. estate wineries changing hands, my sense is that it is still a buyer’s market. More than anything, that is because of the sheer number of wineries out there.

But for a buyer looking to acquire a winery business with a solid brand, well developed sales channels, human talent and the right balance of land and production, I think the market is much narrower. This puts the seller back in the driver’s seat. If you are thinking it may be time to sell, you want to make sure winery is positioned well and effectively plan so you can capitalize on the opportunities that are finally flowing.

Contact MNP’s Geoff McIntyre, CPA, CA, Food & Beverage Processing Niche Leader for the Thompson- Okanagan Region at 250.763.8919 or [email protected]

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