“It’s by far the largest winery in the Pacific Northwest, and it’s one of the largest in the country,” said Adam Beak, head of the beverage group at Bank of the West, who led financing with a syndicate of banks for Sycomore.

It is also the largest private equity industry deal to date for an American winery. Sycamore has purchased tobacco giant Altria Group Inc., MO,
-0.33%
who took possession of it in 2009.

“Traditionally, it has been difficult for Wall Street and private equity firms to participate,” Beak said, pointing to increased agricultural, weather and wildfire and climate risks, but also changing preferences of people. consumers and the pandemic, which crushed sales from vineyards to Restaurants.

However, the flip side of the pandemic sent record SPX yields and stock prices plunging,
-0.25%,
which have raised the profile of alternative investments.

Beak said professional silver interest in the US wine industry has taken another step after the Duckhorn portfolio’s NAPA,

initial public offering in March, a rarity for famed Napa Valley in California, and other recent Wall Street fundings that have helped companies like Vintage Wine Estates VWE,
-1.19%
develop their portfolios.

“This is the highest level of interest I’ve seen in my career, which dates back 25 years,” Beak said in a telephone interview.

Land prices matter

So why would a top-flight private equity firm like Sycamore take on a major Washington winery instead of a California winery?

“Washington can produce very high quality fruit. But he’s able to do it at a much lower cost, ”Beak said, primarily because land in Napa and Sonoma counties can make a lot more per acre.

According to a local banker, the famous Rocks region of the Pacific Northwest, where wines sell for between $ 50 and $ 120 a bottle, starts at around $ 40,000 to $ 50,000 an acre for bare land.

That compares to about $ 130,000 an acre for bare land in the Carneros area of ​​Napa Valley, $ 400,000 and more in Howell Mountain and Oakville, said David Ashcraft, founder of the real estate brokerage firm and vineyard Vintroux. Sycamore declined to comment for this article.

But Beak said wineries also need to produce enough of what customers want to buy, and at the right price.

“There is a demographic shift in the wine consumer, as baby boomers age after their first few years of drinking,” Beak said, adding that millennials seem less likely to spend so much on wine, in part because ‘They are unlikely to have’ that much disposable income ‘, even though they grew up largely with high quality products.

Ste. Michelle produces about 60% of Washington’s annual wine sales.

Under Altria’s leadership, net sales reached $ 177 million in the third quarter of 2021, up from $ 75 million in the first quarter of 2009, according to his company documents. The volume of wine shipments also increased to 1.8 million cases, from 1.2 million during the same period.

“There are a lot of headwinds for these little guys,” Beak said, pointing to climate change, water shortages and higher insurance costs as factors, in addition to disruption during the pandemic.

“It’s a tough business,” he said. “But I believe it will always exist.”

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