Brian Paulluzzi
Last fall, headlines shocked the BC wine industry with news of the $95 million sale of three well-established estate wineries to Ontario-based Andrew Peller Limited. The acquisition of Tinhorn Creek Vineyards, Gray Monk Estate Winery and Black Hills included 250 acres of Okanagan valley vineyards producing over 125,000 cases of wine per year or $24.5 million in annual sales. The purchase wasn’t the first consolidation-style transaction in the sector, and it certainly won’t be the last. Benchmark sales, including those you don’t hear about in the news, have profound implications on winery values throughout the industry.
Okanagan vintners and viticulturists, whether operating a large wine-producing enterprise or small boutique winery, are working hard to produce an elite product in a competitive market rife with complexity and regulation. Future planning is likely the last thing on their minds. Unexpected opportunity or hardship can have them rushing to get their grapevines in a row. Knowing the true value of one’s winery is the first step toward making sound life-altering decisions when refinancing for expansion, succession forecasting or contemplating an offer for purchase.
Naturally, when someone expresses interest in the value of your winery, they have a self-serving, predetermined idea of its worth. This may, or may not, be based on expert opinion. Government officials, insurance agents, financial lenders and investors practice due diligence. But, are their sources accurate? It’s prudent to question their version of your winery’s worth and obtain a professional opinion. A commercial appraiser with an AACI (Accredited Appraiser, Canadian Institute) designation who has experience in the valuation of agricultural lands and businesses can put your mind at ease and ensure you’re getting true market value for your winery.
What can one expect from a professional winery appraisal? Unlike your standard residential appraisal, a commercial Market Value Appraisal takes weeks to complete. In this substantial document, the commercial appraiser carefully considers the impact of a variety of the winery and vineyard’s characteristics including its location, cultivated acreage, market history, zoning, state of title and legal encumbrances, soil analysis, site services, grape varietals and buildings, just to name a few. Once this information is compiled, analyzed and clarified, the winery’s value is calculated using a combination of methods to arrive at a final, reconciled dollar amount.
During this process, much weight is given to the Income Approach. Here, the appraiser conducts a meticulous analysis of several years of the winery’s operating financial statements to determine the stabilized net income. Comparisons are then made to a collection of data on sales of similar properties to estimate value to the “going concern” winery. Comparable sales are most influential when they are similar, current and located in proximity or in a similar market.
Commercial appraisers source the Multiple Listing Service sales data and public records for winery sales from which to draw comparisons. Unfortunately, winery transactions are often concealed, subject to strict non-disclosure agreements ensuring specific details and amounts are not shared with third parties. In many cases, a commercial appraiser relies on his or her personal research through contacts in the industry for the necessary sales information to calculate a true market value estimate for a client.
Since von Mandl Estates, owner of Mission Hill winery, acquired Cedar Creek Estate Winery in 2014, the Okanagan in particular has seen a significant trend toward the purchase and annexation of smaller wineries by larger corporate wine producers. This, coupled with the rise of foreign interest in the BC wine industry, has increased values accordingly. Current sales prices are now higher than historical levels by a significant margin.
The value of a winery is a moving target. Wine performance, market trends, government legislation and environmental circumstances are just some of the factors affecting worth as time goes on. So, when is it appropriate to obtain an appraisal? When any transaction is imminent, knowing the true market value of your winery is certainly vital. Looking ahead toward inevitable changes such as transitioning ownership to family members and/or stakeholders, it is recommended that a winery owner obtain an appraisal to prepare a formal succession plan.
For more information about winery valuations, or to contact me directly, visit ncacommercial.com.