Wineries are never for sale. Sales just happen. Or do they?

By John Bergman

There’s an old English proverb that says “Wine and wenches empty men’s purses.” It’s also been said that “If you want to make a small fortune in the wine industry, start with a large fortune.” After enduring grape gluts and lagging sales the last few years, several wineries and vineyard farmers, both large and small, had to take on debt just to survive. Their hopes were to repay the debt when times got better. In most cases there was too much month at the end of the money and the only solution was to sell the business.

It’s not been the best of times, but the forecast is for improvement. Even the venerable Robert Mondavi, an icon in the industry, couldn’t hold out for the economic turnaround. With more than 50 years in the industry, the giant Mondavi succumbed to economic pressures, so you can imagine the toll taken on several smaller operations with significantly less in the way of money muscles.
In the last two years alone, nearly 20 larger vineyards and more than 10 wineries in the counties of Napa and Sonoma have changed hands. Many more are on the market in the quietest of fashion, seeking relief from fiscal strain and the tumultuous marketplace.

Escaping the “wrath of the grapes” is an emotional tug-of-war for most of the sellers. In many cases, they are parting with dreams and ambitions that have crossed generations. Virtually all are passionate about their work and their wine, and more than one will tell you that reaching the decision to sell is tantamount to removing a loved one from life support.

Once the decision is made, however, the manner in which the sale is marketed and consummated is critical to the “survivors.” First and foremost, it is important to the health of the business — today and going forward — that not everyone knows a winery or major vineyard property is for sale.

The reasons are simple. For example, if a distributor gets wind that a winery is for sale, they might be hesitant to continue to sell the wine out of a fear that they might not be paid. Consumers, wine club members and regular buyers frequently believe a change in ownership results in a change in quality — oft times to the worse — and hold off purchasing the wine until they hear otherwise.

The same applies to vineyard sales. Wineries hold back on signing grape contracts until they know exactly who they are dealing with, worried about farming practices, fruit quality and consistency, which in return costs the vineyard farmer his grape sales, thus no income.

So, how does a winery or vineyard get sold? There are a small handful of real estate brokers that specialize in selling winery and larger vineyard estate properties. I would say less than one half of one percent of the brokers even understands this specialized area of real estate brokerage. Most of them are, by necessity, behind-the-scenes operations that deal quietly, introducing potential buyers to sellers. They have spent years building confidence among clients, closing quiet transactions and establishing outstanding professional ethics that could all be for not if just one winery lost confidence in that broker and the word spread.

The best of these specialized brokers have lives much like double agents—in fact they are considered as “Dual Agents” in most cases, as they usually end up putting both buyer and seller together without another broker involved. They sell wineries and vineyards working both sides of the fence – representing buyers from around the world, secretly introducing them to winery and vineyard owners who publicly say their businesses are “not for sale.” They eschew publicity, fearful that a recognizable mug may ratchet up the rumor mill if they are seen in the company of winery or vineyard owners too many times. They are so careful when visiting properties of clients that they frequently pose as tasting room visitors who just happen to be “friends” of the winery owners. Many winery/vineyard specialized brokers do not even list their telephone numbers in the phone book, relying instead on word-of-mouth referrals from previous satisfied clients.

What should a vineyard or winery owner be looking for in a broker? Someone who can effectively operate “under the radar” and who doesn’t need the ego trip of talking about “the Big Deal that he is working on.” In most cases, this specialized broker will have worked with many attorneys who specialize in winery and vineyard real estate. You may wish to ask for a few legal references to check out this potential broker before doing business. Vineyard and winery sales are not an arena for the amateur. Pick someone with a proven track record and a reputation for confidentiality and dominance in selling this highly specialized product.

It is of paramount importance that the client feels secure in sharing information with his chosen broker and feels confident that his broker is representing his best interests fairly and will only share confidential information with pre-qualified clients that sign a non-disclosure agreement.

One must be patient. Keep in mind the average vineyard/winery sale takes anywhere from three months to more than a year to close of escrow. This is after the buyer and seller have agreed on terms. Make sure your broker is someone whose phone calls you don’t mind taking.

Your chosen broker should understand your goals and objectives and be steadfast in representing your interests. Selling your property to the right buyer requires a broker who has a plan in mind, knows where to go to pinpoint real qualified buyers, and pays close attention to details.

As there are very few specialized brokers in this field, this will become a two-way street. Before the broker will be expected to work with a client, he/she will need to have a clear understanding of certain things from the client in return. Knowing that the client will be honest about everything is extremely important. Trust must be established so that the client feels comfortable about sharing his/her innermost secrets about the business, whether the news is good or not so good. Keep in mind that there will be an extensive list of items that the broker will need from a client before he can even start pricing the project.

The Broker has to sell the client’s winery/vineyard property without telling anyone that it is for sale. The most important people to keep away from are the media, vendors and distributors. Each potential buyer that comes along needs to sign a non-disclosure agreement and should be pre-qualified before any information is shared about the vineyard or winery. If there is another broker involved, they too should sign a non-disclosure agreement and be briefed about how to handle any comments in public.

Most of the brokers and agents who don’t work in this “niche market” do know who specializes in winery and vineyard sales, yet some of them will still try to make “The Big Sale” without any knowledge of the special nuances and pitfalls involved in vineyard and winery sales. This is an injustice to the potential buyer, as well as to the winery/vineyard owner. If a novice broker gets inquiries from a potential client about purchasing a winery or vineyard, the right course of action is for the broker to refer the client to a professional broker who specializes in that part of the business, and then step aside.

Potential buyers should keep this in mind and should ask the agent/broker about their involvement with wineries and vineyard sales, and request a few references as well. Ask the broker or agent which attorneys and accountants they use for these types of sales and contact those professionals for their opinions.

Once a property is for sale, it’s important that it be advertised discreetly. An ad may read “Older, well-established, 25,000-case winery, Russian River Valley Appellation, tours and tastings permit. Confidential and pre-qualified buyers only.”

Once a potential buyer calls about the ad, the listing broker should ask a series of questions before the winery or vineyard is identified. Again, information should be shared only after the buyer is proven qualified, has signed a non-disclosure agreement and has had a face-to-face meeting with the broker.

I get several calls a week from different reporters and editors, digging around for information about wineries that may be available, are in escrow, or are about to close escrow. I tell them nothing. However, I have learned to say “I am working on something at present, and if you don’t bug me, I will let you know so you can break the story first.” They all know that I have three or four deep secrets at all times, and they want to be the first to break the story, so I get “What’s Up?” calls often. Make sure your broker is adept at handling media calls. If he’s not, your transaction has a good chance of never making it to close of escrow.

Each offer on a winery or vineyard property is structured differently. The broker should structure the offer for the buyer, taking into consideration all aspects of the buyer’s needs, but must be sensitive to the seller’s requirements as well. It is important to understand that a “Good Deal” is only good if it works for both parties.

After an offer is accepted, an escrow account has been opened and a deposit is made, the due diligence begins. The due diligence timeframe usually runs from 45 to 60 days, or longer. In that time the buyer literally does everything he can to convince himself he knows more than the owner about the property.

Once the buyer feels absolutely confident about his purchase, he will remove all contingencies, increase his non-refundable deposit and agree to close escrow. During this time, the buyer will have conducted a series of investigations, including, but not limited to:

1. Building inspections
2. Vineyard inspections
3. Equipment lists and inspections
4. Wine inspections and reports
5. Water, well, water storage, irrigation and drainage inspections
6. Sales reviews (retail vs. wholesale, bulk and case goods)
7. Grape sales reports (price-per-ton, who bought the grapes each year, and what are the existing contracts)
8. Property reviews, including lot line surveys, checks on easements and encroachments, etc.

Some of my clients have compared due diligence to an IRS audit, but it’s a necessary evil. Besides, there’s a really big difference between due diligence and an IRS audit. At the end of due diligence and the closing of escrow, the client will get a check. That’s usually not the case with an IRS audit.