Treasury Wine Estates, owner of Penfolds, snaps up US winemaker Frank Family Vineyards for $434m

The maker of Penfolds and Wolf Blass has spent billions buying up wineries in California’s famed Napa Valley and has now bought its latest winemaker in the region.

Treasury Wine Estates boss Tim Ford is confident his company’s latest acquisition in California’s Napa Valley will pay off for the Australian company and broaden its portfolio of luxury wines. Picture: Rachael Dere

Treasury Wine Estates chief executive Tim Ford has turned his gaze from China where the winemaker remains shut out due to crippling and punitive tariffs and towards the huge potential of the luxury wine market in the United States where he has bought the Napa Valley’s Frank Family Vineyards for $US315m ($A434m).

Determined not to make the same mistake of previous management at the Australian wine company that saw a disastrous $2.9bn purchase of Beringer in the US 20 years ago under the old Foster’s structure or more recent forays into commercial American wines, Mr Ford is pledging the deal will help uplift profit margins and grow its portfolio of luxury wine.

“Firstly this deal, it is clearly attractive from a financial metrics perspective and from a growth objective as well, it is a very strong business today it is not a ‘fixing business’ and it is ready for us to grow through what I would say is our strength around building distribution through our luxury selling team and partners in the US,” Mr Ford told The Australian.

“It is a very good business and brand, I think the second component not because of the acquisition but because what we have delivered and done in the US over the last two years, we have significantly transformed that business so that we have set up to capture a significant portion of the luxury US wine market, we are investing to grow.”

In 2015 Treasury Wine Estates took another bite of the US wine industry with the $US552m purchase of most of the US and British-based wine operations of drinks giant Diageo under then Treasury Wine Estates boss Michael Clarke.

That gave it some commercial, cheaper wines and Mr Ford has now set about selling some of the brands and other wines in its portfolio to target at least $300m in returns with some of that now to be recycled into buying luxury wine maker Frank Family Vineyards.

“This goes to show we are reinvesting the capital and have reshaped the business, we are ready to grow, we have done the fixing we need to do and our results have been pretty strong.

“The Americas is the largest premium wine market in the world, so we have always had a business there that has had strengths and I think we have built on those over the last two years.”

During an analyst briefing on Thursday to detail the wine acquisition, Bank of America Merrill Lynch analyst David Errington questioned the reasons for buying Frank Family Vineyards, arguing “the US has always been a graveyard for Treasury Wine and Foster’s”.

Mr Ford said he knew the history of Foster’s and Treasury Wine and didn’t disregard it, but this was a very different business in the US now than what it was two years ago.

Now Treasury Wine Estates is moving to ratchet up its exposure to the US market with the acquisition of Frank Family Wines, a Napa Valley luxury winemaker founded by Rich Frank in 1992. The winemaker has an award-winning luxury portfolio across three collections, with retail price points ranging from US$38 to US$225 per bottle. Frank Family Vineyards’ portfolio is chardonnay led, making up almost half its volume.

In 2021, Frank Family Vineyards generated net sales revenue and pre-tax earnings of approximately US$54m and US$21m respectively, delivering a pre-tax earnings margin of 38 per cent. The business has a track record of growth, with revenue having increased every consecutive year since 2009.

“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,” said Mr Ford.

The transaction value of US$315m, implies an enterprise value/2021 pre-tax earnings and other significant items acquisition multiple of 13.2 times, favourable to both current Treasury Wine Estates and historic luxury wine transaction multiples, the company said.

The Frank Family Vineyards portfolio is highly complementary to Treasury Americas, Mr Ford added, filling a key portfolio gap for luxury chardonnay, and Treasury Americas was well placed to enhance its growth given its leading luxury sales credentials, national distribution network and Californian asset base and sourcing model.

The deal is earnings per share accretive from the acquisition date, with earnings growth expected for Frank Family Vineyards from 2023, the first full year of ownership.

The acquisition is expected to be completed by December.