Accolade Wines deal failure a possibility

If Bain Capital and its backers are unable to agree to a deal with grape growers, receivership or administration is a risk for Accolade.

Accolade Wines’ recapitalisation plan led by Bain Capital could still fall apart at the seams, despite being announced in February, as it continues to negotiate with wine growers.

If the private equity firm and its backers are unable to agree to a deal with its wine grape growers, a threat may be that the business would be handed back to its original lenders and possibly placed into receivership or administration – in a move that would deem the current contracts as null and void.

Australia’s largest member-owned wine grape co-operative, the CCW, last year negotiated a new contract with Accolade that had substantially improved terms.

But a new agreement presented to the growers was recently voted down.

The lenders have argued that the current contract makes it difficult for the company to make money.

However, that would not be the case if Bain Capital and its backers agree to a sale or merger deal with Pernod Ricard over its Australian and New Zealand business.

The sticking point has been that under the current terms, Accolade Wines is being asked to buy more grapes than it needs. But if it mergers with Pernod Ricard, those grapes will in fact be needed for the business.

The Pernod Ricard Australia and New Zealand business is thought to be worth at least a few hundred million dollars, as it owns vineyard assets in New Zealand.

The understanding is that it is a balancing act striking the right terms with the growers and Pernod Ricard as well.

But if the Pernod Ricard negotiations collapse, and the growers refuse to budge on their terms, the other option is for Bain to walk away from the deal, leaving the original lenders in a position where they call in the loans.

In February, Accolade Wines announced it had reached an agreement with its lenders on a recapitalisation plan with Australian Wine Holdco Ltd (AWL), which comprises funds backed by existing Accolade financial partners, including Bain Special Situations, Intermediate Capital Group, Capital Four, Sona Asset Management and Samuel Terry Asset Management.

At that time, Accolade said that the recapitalisation plan was expected to be completed by mid year, resulting in a substantial debt and cost reduction, and funding from each of AWL’s investors.

Accolade said that the transaction was subject to certain closing conditions and customary regulatory approvals.

The Carlyle Group paid $1bn for the business in 2018 when its debt was between $500m and $1bn.

But the commercial wine sector where it has operated in both Australia and the United Kingdom has been hard hit by weaker demand and higher costs, impacting earnings and leading to the recapitalisation plan.

In Australia, Pernod Ricard’s wine brands include Brancott Estate and Jacob’s Creek, and Church Road and Stoneleigh in New Zealand.

Accolade Wines brands include Hardy’s, Banrock Station, Grant Burge and St Hallett.