Consolidation on the cards for wine sector

Private equity firms are understood to have been looking at the wine sector, but the cost of debt is still too expensive for a transaction to be of value.

The trend of consolidation across various industries is set to continue and one that appears inevitable is the wine industry following the recapitalisation of Accolade Wines.

Bain Capital finalised its recapitalisation in recent weeks with its backers of the wine producer that has been the victim of having too much debt.

It sees its owner, The Carlyle Group, now out of its investment and Australian Wine Holdco Limited (AWL) the new owner of Accolade.

AWL comprises Bain Capital, Intermediate Capital Group, Capital Four, Sona Asset Management and Terry Asset Management.

It’s logical that the industry has to consolidate further, but some think one option that could be assessed over time is a back door listing, similar to the Chemist Warehouse back door listing for Sigma Pharmaceuticals.

A couple of possibilities is that Accolade Wines could be back door listed into Australian Vintage, which itself is considering a sale.

However, the challenge with this is that a number of shareholders of Australian Vintage are keen to exit the sector and are pushing for a sale, so will not want to double down.

Then there’s the question as to what happens with Treasury Wine Estates after buying DAOU Vineyards in the United States.

Treasury has a number of assets that are non core, and if it can split those from the stronger performing part of the business you could merge the rump of Treasury with other wine assets on the market.

Pernod Ricard also has assets for sale in Australia that could form part of the equation.

Market sources say that plenty of private equity firms have been looking at the space, but the cost of debt is still too expensive to make a transaction stack up.

Accolade is one of the largest wine companies in the world, producing brands such as Hardys, St Hallett and Grant Burge and its operations span the entire spectrum of grape to glass.

Hurting the industry has been the lagging price for grapes, currently at $357 a tonne, according to Wine Australia, down 11.5 per cent on the previous corresponding year.

For grapes grown in southern NSW and parts of South Australia, they could be even lower.

While many are pinning their hopes on the reopening of the Australian wine market to China in March, many believe this is overbaked.