How Much is Your Winery Worth Today?

(SVBWine) - The Alcohol Beverage Market

Probably once a week someone asks me, what are multiples doing. What they are really asking is "are sales prices going up or down." As a banker I love that question because it means there might be a financing opportunity and a way I can help in an acquisition (...yes I do have a day job making loans as boring as that might sound.)  If you understand valuation theory and want to go straight to the answer to the question, skip down the page to the Current Public Company Multiples section.

Still with me? The answer for alcohol beverage companies is that multiples for craft breweries are at the top of the list, large breweries are at the bottom and wine multiples are in the middle. That makes sense because craft brew is the rage with strong growth. Both spirit producers and craft brewers are cutting into the market share of the traditional beer producers. That reflects in the valuation growth of publicly traded companies as seen in the chart following.

How does the growth rate in an industry segment impact the value of a company? A buyer of any company wants to be in a high demand-driven market because that spells opportunity. If you are buying a stock, you are betting that will go up in value and its the same thing with the buyer of a company. Wineries have been in a strong growth phase for more than 20 years now but we don't see public companies gobbling up wineries and driving up valuations.

Unique Premium Wine Company Factors

Most luxury wine buyers are individuals or Private Equity firms who have a longer investment horizon versus public companies, and don't care about quarter to quarter results. They are in the business for the long run. Put in financial terms, the ROI of a luxury wine asset is negatively impacted by comparatively lower year over year earnings up front, but is then dominated by the amount and timing of the terminal multiple, or exit value of the investment. That doesn't suit Wall Street.