Ep. 2522 Mergers and acquisitions with Mike Hansen of Sotheby’s International Realty | Masterclass US Wine Market

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I do think this is one of the major drivers in acquisition is is looking at a portfolio and saying, like, hey, I don't have a, let's say, call it 20 to $25 pinot noir that I can put out at a 100,000 cases per year. I don't have this mid market high volume bottle. Let me fill that space. And I do think that's a strategic path that's worked for a lot of especially smaller family owned groups is looking at not competing with yourself. You know. This is one of the things, and we'll get into this later. This is one of the things that makes bad deals is when you're competing with yourself. But I think, you know, filling a gap in your portfolio is a strong way to think about diversifying your cash flow, diversifying your income stream, expanding your customer base, and making sure that you're touching more lives and getting, you know, more people into your ecosystem. Welcome to MasterClass US Wine Market with me, Barbara Fitzgerald. In this show, we'll break down the complexities of selling wine in The US by discussing the relevant issues of today with experts from around the globe. Each episode serves up three key insights to help elevate your winery's presence in The US market. So grab a pen and paper, and let's pave the way for your success in The US. Hi, everyone, and welcome to MasterClass US Wine Market. Today, I am thrilled to welcome Mike Hansen to the show. Mike is a certified mergers and acquisition specialist through the New York Institute of Finance. He has an MBA from Sonoma State right here in our California wine country. He's also been working on over $250,000,000 worth of transactions in the last few years. And then beyond that, Mike has been in and around the wine industry his whole life. So he grew up in the wine industry. His parents are in the industry. He and his wife own 14 acres of Chardonnay where they take care of all the ranching and farming. And they also have two daughters. So definitely a great part here of our local, again, California wine country. So, Mike, thank you so much for making the time to be here with me today. You're welcome. Thank you very much for the invite. I am honored to be here and hope to provide some value to your listeners today. Yeah. Thank you. And before we dive into that discussion, Mike, can you tell us a little bit more about your background and how you came to work in the wine business? Yeah. Sure. So I grew up, like you said, in the wine industry. My dad was a winemaker my entire life up and down the state of of California, starting in Napa, down to the Central Coast, coming back up to Sonoma County. My mom has been a consulting winemaker, anologist, lab tech for her entire career and is now in consulting and sensory analysis. I've been surrounded by wine for, my entire life, and I tried to kinda get away from it. I went down the health route at first, and my undergraduate degree is actually in kinesiology, but it kinda reeled me back in over time. I got into real estate several years ago, and I just started gravitating towards vineyard and winery property and eventually, you know, gave up on my on my corporate career to move in this direction permanently. And I've been really enjoying it. It's great to to be in a business that I thought I would avoid my entire life, but, pulls you back in. I can relate completely. I also grew up in the wine industry and said the same thing to myself. I'm I'm not gonna be in the wine industry because I'm not going to do what my family does. And I also went the health route towards nursing school. And then I was like, the pull was just too strong. So how funny. Yeah. Well, I am very excited that you made your way back into wine so that we can have this conversation today. So today, you know, we're going to talk about the fact that we're in this period of consolidation in the global wine industry. The headlines are really focusing on production declines or shifting consumer habits. But beneath all of that, there are investors that are really repositioning portfolios and many still seeking growth, often through acquisitions. So for Italian companies, that creates the opportunity for both, well, it creates both risk and opportunity. The chance to expand internationally, but also the pressure to compete at a different scale. So with that in mind, today are three key takeaways for this episode and what we're really excited to dive into with you, Mike, are first, understanding what drives valuation in the global wine market. So, you know, in wine, value doesn't only live in volume. We've got brand equity, provenance, portfolio fit. Number two, what is the m and a opportunity for Italian brands in scaling through these cross border deals? So, you know, Italian producers don't need to become treasury or gallo, but they do need to think about structuring growth in those ways. And then third, building long term value after the acquisition. So what are some maybe lessons from both successful and failed deals that you could provide us with? So let's dive right in. Let's talk about this first one, the global wine market valuation. So how are wine company valuation deals typically structured today? Like, what multiples are buyers using? Yeah. Multiples tend to always be in retrospect, is the first thing that I'll say. I mean, you look at some of the larger deals that have gotten done, and you can reverse engineer a number, whether it be three times or four times revenue or six to 10 times EBITDA. There are numbers that you can pull out of there, and that's kind of those are kind of the ranges for the top end of the market. You look back at some of the the larger transactions, the Sonoma Couture deal or the Duckhorn sale to Butterfly or even the Dow transaction. And, you know, these are large market cap companies that are selling and, you know, you see that three, maybe four times revenue or six, ten times six to 10 times EBITDA out there as as numbers. But, really, those are kind of always reverse engineered. When actually looking at an acquisition, the diligence is going to be a lot more in projections and pro form a and structuring revenues and cost synergies and making realistic models how the business is gonna run on a go forward basis. And so, you know, I would say those are kind of the the benchmarks that you can use for smaller or mid market size wineries. It's gonna be lower, and that gets into the conversation about goodwill and how much a brand value actually contributes. A smaller, less well known, maybe less distributed, let's say, a 100,000 or fewer case production winery isn't gonna command the same goodwill multiplier. So you're gonna see that sort of shift down. I would say probably in the one to three times revenue range or maybe the five to seven times EBITDA range, for a smaller winery. It doesn't have that name value or that large perception in the marketplace. And so those are those are some numbers, but I think it's really important to remember that when performing due diligence, we're not really using those multipliers as a starting point. That may be where it ends up. But typically, if you're seeing something for sale, there