Today, estate planning must take into account options such as selling the property to a third party, a merger or acquisition, or even just closing it.
By Jeff Siegel
Succession and estate planning has always been one of the most difficult parts about running a winery. That process can be even more complicated these days, when the choices, if not necessarily more numerous, can definitely be more subtle and intricate. It’s just not about passing the winery to the next generation or even handing it over to a long-time employee. Rather, today’s planning must take into consideration options such as selling the property to a third party, a merger or acquisition, or even just closing it.
Further muddling the picture is the current winery economic climate, which is unlike anything the industry has seen in decades.
Start planning early
And then, of course, there are the regulatory burdens, which remain ever constant.
“Ideally, you’re planning your succession ahead of time, because it’s all about the exit strategy,” says San Francisco attorney Rebecca Stamey-White, whose clients include alcohol and cannabis businesses. “You have to think about what you need to do before you [pass it on]. Folks who don’t do that don’t necessarily have any kind of buyer for the business when it’s time to look for one.”
Which is not necessarily new advice. But given the current wine business climate, it’s worth repeating, says Jeremy Little, a partner at Carle, Mackie, Power, and Ross in Santa Rosa, Calif.: “It’s definitely a more difficult route to the sunset.”
In other words, it’s time to weigh the pros and cons for each option.
Passing it on to the family
• Pros: This has traditionally been the succession plan of choice for most family-owned producers, so the process is well known and straightforward for those who begin the process early enough.
• Cons: Family succession may have to take in various tax and estate planning issues that need to be accounted for early in the exit process. And, as Little notes, the owner should try to ensure everyone in the family is happy with the sale arrangements.
Selling to an employee
• Pros: This option has become more popular in the last decade or so, particularly as some family-owned wineries look for new owners outside of the family. In some cases, the long-time tasting room or vineyard manager may be more interested in running the winery than the next generation.
• Cons: Financing. How will the employee pay for the winery? In addition, says Stamey-White, does an employee, no matter how long they’ve worked for you, share the same vision? Can they carry on the owner’s legacy? How can the owner determine this? The business world — wine and otherwise — is chock full of companies that started life as well-respected and admired but were sold and soon became something completely different.
Selling out
• Pros: These days, this might be the most attractive option: dispose of the winery and what assets the owner doesn’t want to keep in one fell swoop, without the concerns of the first two options.
• Cons: Where to start? A depressed market, with what seems to be more wineries than buyers. How to find a buyer with the interest and wherewithal to buy the winery at a fair price? Here, Little differentiates between lifestyle buyers — those who want a winery because it’s a winery — and those who want a winery because they want to buy a business. Little suggests networking via trade associations, local winery groups and the like to help identify prospective buyers.
Merger or acquisition
• Pros: A big premium, as the whirlwind of high-end sales over the past couple of years (think Rombauer, Daou, Ste. Michelle and Sonoma-Cutrer) have demonstrated.
• Cons: Most U.S. producers aren’t big enough or successful enough for this option, says Little. And even if they are, does the winery have the name recognition or specific assets — such as a robust wine club or extensive retail or restaurant market — to interest a third-party buyer?
Other considerations
Keep the intricacies of alcohol law and regulation in mind, says attorney Kimberly A. Frost, a shareholder at Martin Frost & Hill in Austin, Texas. A property’s licenses, both state and federal, don’t necessarily transfer automatically after a sale, and may require reapplying to TTB and the state ABC in the new owner’s name. This can be an especially complicated process, says Frost, if the winery does direct-to-consumer business in more than a couple of states, since the new owner will have to get licensed in each DTC state.
The last resort
Finally, what about just closing the business?
“You never used to see something like that,” says Little, “but I’ve seen it a couple of times recently.“ Just recently, for example, California Zinfandel specialist Carlisle Vineyards & Winery announced 2024 would be its final vintage after failing to find a buyer.
Little’s point: Given the current wine business climate, closure may actually be an option for some owners, who just don’t see a reason to go through any sale process.
To further address these concerns, the 12th Annual WIN Expo will host a comprehensive session specifically designed to guide winery owners through the critical process of exit planning. This session will provide valuable insights into maximizing a winery’s value, preparing for sale, identifying potential buyers or successors, and navigating the complexities of exit planning to secure a successful and rewarding departure from the industry. To learn more, click here.
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Jeff Siegel
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.”
