Private investors face public peers in ‘tug of war’ over vineyard assets

AgIS's $35m reported acquisition of a Californian winery suggests the jury is still out on the right capital structure for the wine business.

Separate-account focused farmland manager AgIS Capital has purchased a 260-acre California vineyard property from NYSE-listed beer, wine and spirits provider Constellation Brands for $35 million, according to local reports.

The deal appears to be the latest case of a “tug of war” over the right capital structure for the wine industry.

AgIS declined to comment and Constellation did not reply to requests seeking further detail, but in an industry overview published last year, Jeff Conrad, president and founder of Boston-headquartered AgIS, hinted the firm saw the sector as one that could match the need of patient investors looking for yield.

“If an investor needs current income and has a moderate risk profile, attaining exposure to mature permanent crops, like established wine grape vineyards and nut orchards, may be an attractive investment strategy,” he said.

AgIS’s purchase comes amid signs of renewed interested in the wine sector from private investors. It follows Duckhorn’s recent purchase of Kosta Browne Winery for an undisclosed price and April’s $75 million recapitalization of Santa Rosa, California-headquartered Vintage Wine Estates, which included participation by TIAA-affiliate AGR Partners.

Located in the Dunnigan Hills region of Yolo County near Sacramento, the property bought by AgIS is part of a 1,700-acre former RH Phillips winery that Constellation acquired with its 2006 takeover of Vincor International. The Canadian wine company had bought the property in 2000.

Real money

Alex Ryan, president and chief executive of TSG Consumer Partners-owned Duckhorn Wine Company, told Agri Investor that assuming each acre AgIS bought produces about eight tons of grapes and that each ton produces about 60 cases of wine, the $35 million purchase price suggests the deal likely included something other than just the farmland.

Ryan, whose history in the California wine industry stretches back to the late 1970s, said  he was familiar with the RH Phillips property and a wine production facility may have been included in the deal.

“Two hundred acres of grapes in Yolo County would barely cover its own costs, there’s no real money in that,” said Ryan. “My guess is they bought a winery production facility. Someone carved up the 1,700 acres, they were able to carve out a parcel of 275 acres, 250 of grapes and 25 of a production plant and they are going to try and make their money in branded product production.”

Under such a scenario, according to Ryan, AgIS could source grapes from other independent growers in the hope to build a consumer wine brand.

According to Ryan, the RH Phillips property AgIS acquired demonstrates the back and forth that has moved some wineries in and out of public markets since the 1990s.

“I sense there is a tug of war in trying to find the right capital market structure for the wine business,” said Ryan, whose company has been purchased by private equity firms twice over the past 10 years.

More recently, he said he had been aware of increased private investor interest in agriculture generally and California agriculture in particular.

“There is more professional investment review going on in our space than there were two years ago, certainly five [years ago] and absolutely 10 years ago,” Ryan said.