Private equity looks set to take control of collapsed wine group McWilliam’s

After 141 years of family ownership, McWilliam’s Wines is poised to be taken over by private equity.

ONE OF Australia’s oldest family-owned wine producers, McWilliam’s, looks set to fall into private equity hands, with a global firm chaired by Melbourne businessman Charles Hunting emerging as the frontrunner to buy the collapsed wine group in a deal worth more than $46m.

The company’s administrators Gayle Dickerson, Tim Mableson and Ryan Eagle of KPMG have recommended creditors support an offer from Mr Hunting’s fund Prcstnt Asset Management.

Prcstnt - pronounced “persistent” - is a global private equity and venture capital firm focused on sustainability in the food, agriculture, energy, resources, technology and intelligence sectors. Its first fund was launched in 2016 and it now has $1bn under management.

Creditors are set to vote on July 24 on Prcstnt’s proposal, which includes recapitalising the 141-year-old family-owned company. Ms Dickerson said Prcstnt’s offer was the best to provide McWilliam’s - Australia’s sixth-biggest wine producer - with a “platform for growth”.

Under the deal, Prcsnt would pay $30m for the company and more than $16m for its stock, depending on a stocktake and valuation.

“We are delighted to have reached a significant milestone in the administration process for McWilliam’s Wines,” Ms Dickerson said.

“The proposal received from Prcstnt Asset Management provides a platform for growth and a confident step forward for the company, employees and stakeholders.

“It removes any lingering uncertainty around its financial stability, which has limited its growth potential in recent times. It also provides continuing employment for staff, and will deliver a substantial return to creditors, and possibly shareholders.”

Mr Hunting said he considered McWilliam’s - known for producing a range of affordable wines, including $13 flagons of sherry - has becoming Prcstnt’s “cornerstone investment” in Australia’s wine industry.

“While it is critical that McWilliam’s is moved out of administration and returned to profitability in the immediate term, over the medium to longer term we will look to inject further capital to scale the business in both domestic and international markets, while driving environmental outcomes in line with our philosophy,” Mr Hunting said.

Under a Deed of Company Arrangement proposal from Prcstnt, priority employees and secured creditors will receive 100c in the dollar, while unsecured creditors will receive 94-100c in the dollar. Whereas, if the company enters liquidation, unsecured creditors would receive 52-86c in the dollar but priority employees and secured creditors would still receive 100c in the dollar.

Ms Dickerson said if the company went into liquidation instead, a liquidator could investigate two claims she and her fellow administrators identified in their preliminary investigations, including a potential insolvent trading claim against the directors for an amount of approximately $3.4m, and a potential unfair preference claims against third parties for any amount of approximately $1.7m.

Breach of lending covenants

McWilliam’s entered into voluntary administration in early January, 12 months after the company was forced to seek an urgent capital injection and pursue asset sales after it breached some of its lending covenants.

It had recorded cumulative losses of close to $90m since FY15. Meanwhile, the net asset position of the group reduced from $57.4m to $31.3m from June 30 2018 to December 31 last year.

One of the biggest drains on its finances was a 50-year lease, signed in 1974, on a warehouse lot in Chullora – near the former housing commission home of Paul Hogan where he lived while working as a rigger on the harbour bridge. McWilliam’s agreed to pay 8.5 per cent of the unimproved value of the lots each year, with the site being revalued and the rent readjusted every three years.

Recent estimates value the warehouse at 68 Anzac Street, Chullora, at around $30m, meaning McWilliam’s was paying rent just shy of $3m a year, which includes about $300,000 of outgoings. This equates to more than 3 per cent of its annual revenue of $87.5m, according to its latest accounts from 2018.

Making matters worse, McWilliam’s hadn’t used the site since 2017 and advertised to sublet it several times in the past three years. One agent even described the rent as “cheap” in an attempted to attract a tenant for McWilliam’s. Earlier this year the site was advertised with two leasing agents.

One of the first actions from Ms Dickerson as administrator was to rip up the costly lease agreement. Another one of her early decisions was to commit to the 2020 vintage, estimated to be around 20,000 tonnes.

“It is our absolute priority in terms of trying to bed down business as usual,” Ms Dickerson told The Australian at the time.

McWilliam’s has a vast portfolio of brands under its own name as well as Mount Pleasant. It is also the sole Australian distributor for prominent global brands including Champagne Taittinger and Framingham.