Here’s another little nugget from today - Andrew Murray snuck in and purchased the Qupe brand from Vintage - he’s very very excited about the opportunity to bring the brand ‘back’ so to speak - and they already have great presence in many markets across the US.
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Adam, speaking as an ex-private equity lawyer who knows a fair amount about it, your concerns are legitimate, but I’d suggest that the “end” of Duckhorn isn’t as certain as you might think.
First off, recall that Duckhorn was owned by private equity for years. GI Partners invested into them in 2002, and then TSG took control in 2016 (ultimately taking them public). Now, granted, 2016 was a time when debt was super cheap compared to today, and we don’t know anything about the debt being used to take Duckhorn private (I checked the public filings and no detail has been filed yet). But, private equity ownership of Duckhorn in the past didn’t destroy the company, so there’s some precedent there.
Second, there’s an argument to be made that Duckhorn is better off in the long run to not be a public company. The wine business, which needs to tie up capital over years, doesn’t really match very well with public investor expectations, which are focused on quarterly results and perpetual growth. We haven’t seen many public wine companies, and there’s a reason for that. Vintage was public, and that didn’t work out too well. Granted, it was a plethora of issues that brought them down, but being public (via a SPAC) was one of them.
Your deep skepticism of private equity and its approach is reasonably warranted; however, it’s not a guarantee for failure.
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not sure if I’m helping the cause, but the article did say that this was an “all cash buyout”.
What that means is that the public stockholders will receive 100% cash for their stock, rather than a combination of cash and/or stock (which could happen when one public company buys another). Most likely, the PE Fund is borrowing a portion of the cash needed to fund the 100% cash price.
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What this also means is that we now know how much the Sonoma Cutrer purchase cost them - $50 Million plus approx 20% of Duckhorn = about $440 Million or so? Unless my math is off . . .
Cheers
Not quite - that’s using today’s valuation. However, you’re not that far off. Looking back at the press released when they announced the deal, they priced it at approximately $400mm.
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The debt financing is through AgWest and its affiliates.
AgWest is extremely conservative in their lending policies so I would assume the numbers fully support the transaction.
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Interesting in that a couple months ago that 800 lb gorilla distributor came to me with some very special pricing on Duckhorn products. Now, one might believe they ( Duckhorn) were converting inventory to cash, pre Sell.
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what store is that photo from?
This is similar to the point I’ve made in other threads about how “the wine market” when speaking generally is not us but rather is Barefoot and similar brands, and I fully admit this is just a consumer’s perspective with no industry-insider knowledge, but this makes sense to me in light of the well-documented trends among those who are of drinking age but younger than Gen X tend to a) drink less alcohol overall, and b) drink less wine as a percentage of their alcohol consumption.
If younger folks are drinking less, it makes sense that sub-$20 wines are suffering more because younger folks presumably shopped more in the sub-$20 category than older folks (more of whom have reached the point of spending more on luxuries/hobbies due to reaching their peak earning years and/or finally being done with child care expenses or student loan repayments or whatever) before they started cutting down on drinking, so when younger folks buy less wine, it’s the wines they had been buying that see sales drop, and that’s the sub-$20 market.
As to the double whammy of wine also taking a smaller piece of the shrinking pie, let’s not forget that compared to, what, 5 years ago? (8 years ago?) there is an entire new category in hard seltzer that is probably the largest taker of market share from wine in the beverage alcohol pie. If hard seltzer is taking market share, same thing as in point 1 - hard seltzer is not a luxury product catering to the $50 wine or Scotch buyer. It makes perfect sense that if hard seltzer is taking market share from beer, wine, and spirits, it’s the segments of those categories that are priced similarly to hard seltzer that are losing the most share, and again as to wine it’s the sub-$20 wines that are going to get hit the most.
Given that those factors seem to be at play it makes perfect sense to me that this is the result, as opposed to the standard macro-economic reaction you might expect if wine sales were declining in dollars but not in volume and not by market share, due to a significant recession or the like.
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That is great news! I’ve enjoyed their hillside syrah for a long time.
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I appreciate the nuance, @Marc_Hauser
I agree that wine companies are normally a bad for for going public. Just like they are a bad fit for bigger corporate owners. Although Duckhorn has done very well in that regard.
I’m just weary from adjacent businesses where PE firms have wrecked. They love “inelastic” markets (as they like to say), where the customer can’t go elsewhere. Captive markets - either by regulation or demographics.
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Remember, younger drinkers are not only drinking less- but spending more per bottle. It’s a double whammy for the sub- $20.
brands like Flip Flop flopped with the millennial, but some how survived with the Gen-X and older crowd. “Critter labels” as we used to call them don’t appeal to the younger crowds. The younger buyers are looking for quality and value for what they spend, whether that’s $25 or $100.
So that’s really a triple-whammy for the low-priced wines - young folks drinking less beverage alcohol, young folks drinking less wine and more hard seltzer when they do drink alcohol, and young folks trading up in price when they do choose to drink wine.
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There seems to have been a lot of Duckhorn on WineBid recently. Not sure if it relates to the sale or not.
@Kris_Patten would have the details, but I recall something recently that basically the seltzer market was getting shaky, with only White Claw and High Noon doing well. Kris, do I have that right?
There is way too much beer, hard alcohol, wine and other alcoholic beverages being produced, and it’s going to take a lot of these to fail for this glut to correct itself.
The biggest issue with this glut? The overall quality of the volume of what is out there doesn’t appear to be that good. Certainly not stuff that folks on this board are going to go out of their way to buy up, even at a steep discount.
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High Noon is coming back to earth a little bit depending on the maturity of the market, Surfside is very much on the rise with the popularity of non-carbonated options. Last I saw Whiteclaw was not doing well in IRI, and Truly is dead. There has also been a massive trade down from the super premium spirits at $40+ to to the mid $20’s.
There has been a resurgence of the sub ~$10 price point in retail the last 6 months and especially in the boxed wine space, that I attribute to people saving more as we enter an uncertain election season. Anecdotally my own mother sent me a text saying her favorite Pinot went from $8.97 to $9.97 and that was a problem for her and my mother is very much the average boomer wine consumer. Wine is treated like a domestic beer, in that I mean it is just the 5PM beverage of choice and price is main choice driver and then quality second.
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All I need to say is:
Bartles & Jaymes
California Wine Cooler
Mike’s Hard Lemonade
New York Seltzer
Anyone of those you can get?
Same with canned wine - you see much of it sold in your supermarket?
It’s like 3D in cinema - they’ve tried 3 times now - once in the 50’s, once in the 80’s and just a few years ago. It just won’t stick. Nobody wants it long term.
My guess is that we won’t have many of the hard seltzer brands, or much canned wine in just 5 years. But we will have wine in bottles… 
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I guess I’d better get my White Claw cranberry vertical off to Winebid now, while there’s still hope! 
Not a category I will miss if it goes that way, any more than I miss Zima or B&J.
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