A BVR Special Report Excerpt from What It s Worth: Winery Value What It s Worth
What It s Worth: Winery Value A BVR SPECIAL REPORT 1000 SW Broadway, Suite 1200, Portland, OR 97205 503-291-7963 www.bvresources.com
Copyright 2016 by Business Valuation Resources, LLC (BVR). All rights reserved. Printed in the United States of America. No part of this publication may be reprinted, reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher or authorization through payment of the appropriate per copy fee to the Publisher. Requests for permission should be addressed to the Permissions Department, Business Valuation Resources, LLC, 1000 SW Broadway St., Suite 1200, Portland, OR 97205; (503) 291-7963; fax (503) 291-7955; permissions@bvresources.com. Information contained in this book has been obtained by Business Valuation Resources from sources believed to be reliable. However, neither Business Valuation Resources nor its authors guarantee the accuracy or completeness of any information published herein and neither Business Valuation Resources nor its authors shall be responsible for any errors, omissions, or damages arising out of use of this information. This work is published with the understanding that Business Valuation Resources and its authors are supplying information but are not attempting to render business valuation or other professional services. If such services are required, the assistance of an appropriate professional should be sought. Editor: Scott Kraft Publisher: Sarah Andersen Managing Editor/Desktop Editor: Monique Nijhout-Rowe Senior Copy Editor: David Solomon Chair and CEO: David Foster President: Lucretia Lyons Vice President of Sales: Lexie Gross Customer Service Manager: Retta Dodge ISBN: 978-1-62150-068-1 Library of Congress Control Number: 2016938991
Table of Contents INTRODUCTION...4 SECTION I: THE LANDSCAPE OF VALUE FOR THE WINERY INDUSTRY...5 1. KEY DRIVERS IN WINERY VALUES...6 SECTION II: VALUATION METHODS AND CONSIDERATIONS FOR WINERIES... 10 2. SPECIAL ISSUES AND CONSIDERATIONS FOR VALUING WINERIES...11 3. SIX QUESTIONS TO ASK WHEN ANALYZING WINERY OPERATIONS AND CASH FLOWS...26 4. VALUATION EXAMPLE: A WINERY CASE STUDY...31 5. FOUR UNIQUE ASPECTS OF WINERIES MAKE VALUATION A CHALLENGE...45 By Keith Meyers, CPA, ABV, CFF 6. CASES OF NOTE IN WINERY TRANSACTIONS...48 Arn v. Arn...49 DFG Wine Co., LLC v. Eight Estates Wine Holdings, LLC...50 Estate of Heck v. Commissioner...52 SECTION III: BUY-SELL TRENDS IN THE WINERY MARKET... 55 7. THE CURRENT MARKET FOR WINERIES...56 8. THE BUY-SELL LANDSCAPE FOR WINERIES...59 SECTION IV: SELLING AND SUCCESSION PLANNING FOR WINERY OWNERS... 61 9. HOW TO MAXIMIZE THE VALUE OF A WINERY...62 10. HOW SUCCESSION PLANNING BUILDS WINERY AND VINEYARD VALUE...65 SECTION V: FINANCIAL AND VALUATION DATA FOR WINERIES... 68 11. WINERY INDUSTRY FINANCIAL REPORT FROM BIZMINER...69 12. PRICING RULES OF THUMB WINERIES...85 13. ADDITIONAL RESOURCES...89 www.bvresources.com 3
Introduction Whether you are a business appraiser, a winery owner, or an investor, wineries are quite unique to assess from a value perspective. There are many variables affecting value that are inherent in winery operations, and they can be difficult to control. There s the weather, which can have a dramatic impact on the quality of the product from year-to-year. As the industry grows, there s the challenge of being able to secure the grapes needed to control the business. There s also the long cycle of production, from the time the grapes are harvested until the wine is ready to be sold, along with the distribution method, where wineries fight for shelf space and attention or strive to lure enough visitors to the facility to purchase directly. In this BVR special report, What It s Worth: Winery Value, you ll get advice from top experts who work with wineries and study valuation issues associated with this industry on a daily basis. These experts walk you through the factors involved in winery valuation, from the best valuation approaches to use to how to value the buildings associated with the winery, the specialized equipment needed to produce the wine, and the key personnel who operate the winery. In addition, this report contains benchmarks that will help you understand where a winery falls in terms of revenue, liabilities, and overall value. This special report will bring you up to date on the current trends and pressing issues of the industry, as well as introducing the key drivers that will help you hit the mark when valuing a winery. Scott Kraft, Editor 2016 4 www.bvresources.com
SECTION I: THE LANDSCAPE OF VALUE FOR THE WINERY INDUSTRY
1. Key Drivers in Winery Values The methods used to value a winery are similar to those used for most industries, but with a few significant differences. Winery values are often influenced by factors such as the capital intensiveness of the business, ownership structures, and the disparity in size between bigger and smaller wineries, which complicate the process of properly valuing the assets of these types of businesses. Both Jim Andersen, of Hemming Morse LLP and Keith Meyers, of Perkins & Co. have worked extensively with winery and vineyard management clients on a range of matters including merger and acquisition transactions, buy-sell agreements, dissenting shareholder actions, marital dissolutions, and estate and gift tax plans. Here are the key value drivers that Andersen and Meyers discuss with clients who are looking to buy or sell a winery: Capital intensiveness; Winery type; Different markets for different tiers of wine; Brand value; Debt structure and capital needs; Distribution; Weather forecasting/vineyard replanting models; Stable sources of grapes and manufacturing inputs; 6 www.bvresources.com
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