There are two non-negotiable beverages in my eyes: coffee and wine. At the end of the work day you will most likely find me firmly attached to the couch with a glass of red and a good book.
I have a feeling that the folks over at Treasury Wine Estates (ASX: TWE) are my type of people, One of the world’s largest wine companies in the world, Treasury lives and breathes wine. The vertically integrated business focuses on making, marketing and selling wines. With over 12,000 hectares of vineyards in numerous countries (Australia, New Zealand, America and Italy), TWE has exposure to some of the most sought after grapes from key regions in the world. Brands under the TWE banner include Penfolds, Lindemanns and Wolf Blass. In total the Company has over 70 brands sold worldwide.
Increasing their portfolio in the US, the Company will now acquire Frank Family Vineyards, a high margin luxury wine business with a strong track record of growth. The founder-run business was established in 1992 and boasts an award-winning luxury wine portfolio. Based in the Napa Valley, California, the vineyard’s wines have a strong direct to consumer presence and fills a key gap in the Treasury portfolio in luxury chardonnay. Frank Family Vineyards sell their wines anywhere from USD $38 to USD $225 per bottle, enabling them to achieve consistent growth over the long term.
The market potential for luxury wines in the US is forecast to grow at a compound annual growth rate of 6.3% to 2025, and is the fastest growing wine category behind Premium and Commercial lines. Within the luxury wine market, chardonnay represents 16% of the key market, an area the Company is looking to get exposure to.
As a vertically integrated business, TWE intends to adjust the operating model and organisation structure of Frank Family Vineyards to optimise processes and create cost savings. More cost savings can be achieved through the divestment of non-priority brands and assets.
CEO (and sommelier I bet) of Treasury, Tim Ford said: “the acquisition of Frank Family Vineyards represents an outstanding complementary addition to the Treasury Americas brand portfolio and is another important step towards our ambition of becoming the premium wine market leader in the Americas.
“This is a rare opportunity to acquire a luxury brand and portfolio of wines that consumers enjoy and connect with. This business has a proud and consistent history and proven track record of success, having been expertly built and led by Rich and Leslie. Together with them, we are excited by the future potential that will be unlocked by the strengths of the Treasury Americas luxury wine platforms.”
Frank Family Vineyards runs at a 35-40% EBIT margin and the acquisition will be EPS accretive for TWE from the acquisition date. TWE has offered USD $315 million (AUD $432m) for the business, an acquisition multiple of 13.2x FY21 EBITDA. The acquisition will be funded via a combination of available debt facilities and cash following the recent divestment of some TWE assets and will be finalised in December 2021.
For FY21, Treasure Wines was impacted by international trade headwinds to report a slight 3% decline in revenue of $2.6 billion but net profit after tax increased 3% to $309.6 million.
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