Winery buying spree expected to ease on North Coast

Mergers and acquisitions in the North Coast wine industry should slow down in 2015, leveling off after a recent buying spree where vintners sought to enhance their positions amid a scarcity of available vineyards and growing restrictions on winery usage, such as for special events.

While the local buying activity should ease, it will likely continue in Oregon and Washington state, especially as large wine companies such as E&J Gallo Winery, Jackson Family Wines and Foley Family Wines look for strategic purchases that cost less and come with fewer restrictions than acquisitions in Napa and Sonoma, according to experts who spoke Thursday at the North Coast Wine Industry Expo held at the Sonoma County Fairgrounds.

“We think the mergers will slow down in the vineyards. We think the end-user has bought a lot of vineyards,” said Joe Ciatti, principal at Zepponi & Company, a wine industry mergers and acquisitions firm based in Santa Rosa. “There may be some real key ones left out there, some high-end ones, but it won’t be as active in our minds as it has been.”

The biggest local deal in the past year was the purchase of Kenwood Vineyards by French wine and spirit giant Pernod Ricard from F. Korbel & Bros., a sale estimated at $100 million by Reuters. That deal was done by Zepponi & Company.

Other notable sales were on a much smaller scale but featured well-known names in the local wine industry, such as Foley Family Wines buying 80 planted acres in Carneros from Champlin Creek Vineyard and J. Vineyards buying 45 planted acres in the Sonoma Coast from William Wesley Annapolis Vineyard. Last month, Paul Hobbs Winery bought 80 planted acres in Sonoma County from the Feeney Ranch, Ciatti noted.

Buyers in Sonoma and Napa counties are being very selective with their purchases, said Robert Nicholson, principal at International Wine Associates in Healdsburg.

“Buyers are very, very specific on what they want. They want a Russian River winery. They don’t necessarily want a pinot noir anywhere else,” Nicholson said.

The activity in the Pacific Northwest should continue to grow, whether it’s pinot noir from the Willamette Valley in Oregon or cabernet sauvignon from the Walla Walla Valley in Washington.

Jackson Family Wines purchased three Oregon properties last year. Such purchases continued this year as Foley Family Wines bought the Four Graces brand and vineyards and Ste. Michelle Wine Estates bought Willakia Vineyard. Both vineyards are in Oregon.

The reason is cheaper land prices, complimented with other benefits such as a more plentiful water supply. The median value for vineyards in Oregon ranges between $35,000 and $40,000 per acre with a maximum of $75,000. In Washington, it is $25,000 to $30,000 with a maximum of $80,000.

In contrast, Napa Valley cabernet sauvignon vineyards are now selling between $200,000 to $400,000 per planted acre. Prices for Sonoma County vineyards now range from $90,000 to $120,000 per acre, Ciatti said.

“Everything has gone up fairly dramatically in the last three years,” Ciatti said of the local market, where the amount of new vineyard land is limited, especially in Napa and increasingly in Sonoma.

Oregon and Washington wines are also more affordable, which allow vintners to expand their consumer base with products that compare favorably with Northern California wines that cost far more, Nicholson noted. A 2010 cabernet from Napa Valley with an average score of 90.5 retails for $119.64, while one from Walla Walla with an average rating of 90.9 retails for $54.83, he said.

A few major wineries such as Duckhorn, Gallo, Cakebread and Crimson Wine Co. are making wine from Washington grapes, and Nicholson noted the market should be increasingly more competitive with even more vintners.

“Basically, the past three years it has been pretty active,” Nicholson said of the activity in Washington.

Another negative factor for those looking to enter or expand in the local market is increasing restrictions placed upon wineries, from the amount of visitors per day to the number of special events, said John Mackie, managing partner at Carle, Mackie, Power & Ross LLP, a Santa Rosa law firm. For example, Sonoma County planning commissioners voted last month to ban all events at Bella Vineyards, citing a long list of permit infringements.

“We think that the environment in Napa and Sonoma right now is chaotic in terms of use permits. The counties have traditionally overlooked literal interpretations of these use permits in many ways, and now many (wineries) want to make sure to have events or want to be open to the public; they want to do many things,” Mackie said. “The neighbors and the county staff aren’t necessarily going to go for that.”

Both Mendocino and Lake counties should see continued activity, Ciatti said, noting Gallo has made some acquisitions in Lake County, most notably its Snows Lake Vineyard purchase in 2012.

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.