The situation happens so often these days that it has become a cliché—the Baby Boomer winery owner who knows it’s time to retire, but has decided to sell rather than to leave the business to the family. But what comes next?
“If you don’t have a clear understanding about that, the process will fall apart quickly,” says Jamie Watson, a partner with GVM Law in Napa and certified in estate planning. “Because there is a process, and you need to learn to trust the process.”
“The process” is as much about shedding myth as it is about practicalities. That’s because it’s often difficult for an owner to understand that all the blood, toil, tears, and sweat won’t necessarily mean a higher sale price. Or that countless buyers, pockets bulging with cash, are waiting in line to make an offer.
Rather, it’s about understanding that selling a winery isn’t all that much different from selling any other kind of company—the romance of the wine business means about as much to the sale price as it does when selling a company that makes cardboard boxes or sweatpants.
In this, selling a winery is a business transaction, nothing more or less, says Patrick Fallon, COO and managing director of the CSG Partners consultancy in New York City: “There are generic issues that aren’t specific to wine, and it doesn’t matter if you started the business from scratch or inherited it; and it doesn’t matter if you’re walking the vineyards or manufacturing widgets.”
And that means all sorts of duties that may seem boring, frivolous, and even baffling, but are necessary to make sure everything satisfies the buyers, as well as your suppliers and your employees. Think of it like selling a house, but infinitely more complicated and frustrating—and something that can take much longer.
As such, this includes—but isn’t necessarily limited to—six key areas (as well as whether the winery is being purchased by a multi-billion dollar multi-national, which is another story entirely):
• Setting a price and finding a buyer. Watson, who has been through this process both as an attorney and a family member, says hiring professionals to do both is crucial. “You need to know where you slot in,” he says, “and it’s often difficult to do without someone who knows the process and who knows who is willing to pay top dollar.” Yes, he acknowledges, this can be costly, but the alternative is doing it yourself. And do you really want to do that? (No.)
• Open the books. This means full disclosure—not only of the winery’s financials, but supplier and wholesaler agreements, intellectual property and trademarks, wine blends and formulas, estate vineyard conditions, and employee contracts. This, says Watson, can be a stumbling block for winery owners who have long kept some of this secret, like a proprietary blend, or operated on handshake agreements with suppliers and grape growers.
• Take care of the basics. This includes the various corporate governance issues that might have been overlooked (Were board meetings actually held? Were officers actually elected?), as well as the winery’s various local, state, and federal licenses. What happens to them when the winery is sold? Who is responsible for transferring them to the new owner? And, just like a house sale, it can include repairs to equipment and buildings. Who wants to buy a tractor that doesn’t start?
• What kind of a sale? This can be vastly complex, and not just because state laws can differ. Is the potential buyer public or private? Will it be a stock or an asset transfer? The list can go on, and each scenario has specific requirements, as well as advantages and disadvantages. Says Lauren A. Galbraith, an attorney for the San Francisco firm of Farella Braun + Martel who works with families and businesses who need estate planning, there are ways to arrange the sale to benefit heirs and reduce taxes. But no one size necessarily fits all.
• Because, of course, taxes. Not only property, but estate taxes and other state and federal levies (which can also vary depending on where the winery is). This is one of many reasons, says Galbraith, that sale planning should take place well before the sale is planned. The last thing anyone wants, she says, is a forced sale after a death and its tax disadvantages.
• Consider your employees. Is part of the winery’s value due to a top sales manager, standout vineyard manager, or top winemaker? What happens to the sale price if they want to leave rather than work for the new owners? They will need to be consulted at some part of the process—something else, says Watson, that is often difficult for some owners to understand.
READ ALSO: Successful Succession Planning for Family-owned Wine Businesses. And learn more about planning for the future of your wine business during Wine Industry Network’s Annual Leadership Conference. Registration is open and free for wine industry professionals.
Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”