“Mergers & acquisitions” in the wine world: business concentration is inevitable

There are those who see it as a well-defined business pattern, with companies that have understood that, in order to grow and conquer new markets, they must become bigger, diversifying their offerings; there are those who judge it as a positive phenomenon, especially when the transfers of capital arrive from families of entrepreneurs from other sectors, bringing new skills to the sector; and there are those who are not surprised because in every economic sector, or almost every sector, this is the almost ineluctable path. In any case, the phenomenon of “mergers and acquisitions” in the Italian wine scenario (and not only) is becoming more and more intense, as reported in the news and pointed out to WineNews by operators and observers such as Lorenzo Tersi, one of the greatest experts in the sector, at the head of LT Wine & Food Advisory, or economists and university professors Davide Gaeta (University of Verona) and Stefano Cordero di Montezemolo (University of Florence). And if this 2022 opened, in less than a month, with the news of the growth, with the acquisition of hectares of vines and companies, of Caparzo by Elisabetta Gnudi Angelini in Montalcino and of San Felice (of the Allianz Group) in Bolgheri, and the announcement of the now almost closed agreement for the Illy Group’s “Polo del Gusto” in Barolo, is the natural continuation of a 2021 that has been decidedly intense in terms of acquisitions, mergers and capital openings in the world of Italian wine.
With the Clessidra fund acquiring Botter and MondodelVino, Antinori the majority of the Friulian griffe Jermann, and again Coppo entered the Dosio group, Italian Wine Brands bought Enoitalia, the Apulian Torrevento (already in the Prosit group of Quadrivio and Pambianco) took the majority of Oria Wine, without forgetting the growth to 7.5% of Masi (and the entrance in the board of directors) of Renzo Rosso, patron of Diesel, through Red Circle Investment. The Frescobaldi Group also bought Corte alla Flora in Montepulciano, while Hyle Capital Partners, through its Finance for Food One fund, entered the capital of Contri Spumanti and Santa Margherita even bought in the USA, with the acquisition of the Roco Winery in Oregon, just to mention the most important deals. This is one of the reasons why “it is reasonable to think that in 2022 there will be a further acceleration of this phenomenon, if not a real upsurge,” Lorenzo Tersi, one of the leading experts on the subject and head of LT Wine & Food Advisory, told WineNews. “But the real news is that those who lead the companies have become aware that, in order to grow on the markets, it is necessary to increase their size, diversifying their “geographical” offer.
Obviously, the pandemic has had a big impact, especially because “many small companies that had distribution in distressed channels such as the on-trade, have been made to understand the need for a partner to tackle the markets. And the positive fact is that modern finance is willingly putting resources into the world of wine, especially by private groups that are looking for target companies that have potential”. And, according to Tersi, in 2022, we will see dozens of operations. “Today we now have more clients who ask us to identify and select companies to buy, rather than realities that ask us to look for a buyer”. If once realities with several wineries and brands in different Italian territories were a rarity, today, although with different characteristics and dimensions, there are dozens of them, with names such as Gruppo Italiano Vini (GIV), Antinori, Frescobaldi, Santa Margherita, Terra Moretti, Tommasi Family Estates, Zonin 1821, Feudi di San Gregorio, Angelini Wine & Estates, the Prosit group, ColleMassari Wine Estates, Masi Agricola itself, Italian Wine Brands, Allegrini or Piccini 1882, the Duca di Salaparuta group or the galaxy led by Fontanafredda of the Farinetti family, to name but a few. “In this year and the next,” adds Tersi, “we will see more and more wine groups looking at the fashion model. Today there is no Lvmh in Italy, that is an acronym that also has several wine brands, or something similar to Kering in fashion, that is a reality that then owns many autonomous brands such as Guggi or Bottega Veneta, but also foreign brands. But, probably, in the next few months, we will see the emergence of great synergies especially between France and Italy, led by large groups that working together, in some formula, including that of the joint venture, could integrate to grow further”.
“I see this as a positive sign,” adds Davide Gaeta, producer, economist and lecturer in Wine Business Economics at the University of Verona, “especially when we are talking about capital arriving from other sectors, and especially if it comes from families of entrepreneurs, rather than funds. Because in addition to a “transfer” of capital from one sector to another, it also becomes a transfer of skills, especially on the innovation front, which, due to size and cultural model, is often a limitation for small Italian wine companies. And in this sense we should also point out the “verticalisation of distribution” on the part of many companies that are increasingly creating or acquiring businesses to manage importation and distribution in the markets (as recently reported by WineNews, ed.). There is a trend towards concentration, it is a fact. And what we see is only a small part of what could be, because there is a lot of capital from families of entrepreneurs in Italy who are not yet investing in wine because they do not know the sector or are afraid of it”.
The fact that the phenomenon of concentration, even in the world of wine, is increasingly strong, however, does not come as much of a surprise, as Stefano Cordero di Montezemolo, economist and Professor of Wine Business Economics at the University of Florence, points out: “15 years ago, when we were talking about economics and finance in the world of wine,” he reminds WineNews, “I said that it was inevitable that we would move towards concentration, as happens in every economic sector. And concentration can be achieved in two ways. Either by acquiring market shares, as has happened, given that 15 years ago the 200 largest companies made 50% of packaged wine, perhaps less, while today they make over 65% of production. In this sense, the realities with strong company structures have emerged, capable of overcoming the crises that have occurred and a market that has turned upside down, and which today, compared to the past, sees a preponderant export quota, between 60% and 70%, compared to that of the domestic market. And in order to conquer the market and maintain it,” Montezemolo emphasizes, “in addition to product quality, we also need distribution and commercial strength, the ability to reward agents and manage the network better than our competitors. The second way is that of acquisitions, which, however, is almost always pursued either by investment funds that have liquidity, or by large companies such as Italian Wine Brands, which is also listed on the stock exchange, or in any case by groups of companies that are already large, with over 100 million euros in turnover, and make targeted and organic acquisitions either to complete the offer, or to set up in territories where they can then perhaps develop further. But if we look at the largest operations, they all involve companies with a more industrial approach. On the other hand, private equity often looks for realities with little land ownership and a lot of production, and this is the target, and in this sense the world of Prosecco, for example, can be very interesting. Sometimes, then, companies grow so much that different visions emerge among the owners, who are often family members, and there are those who decide to monetize. In any case, the concentration of companies in the wine world is a phenomenon that will develop further. We must also remember that the market for packaged wine, as we know it today, is a recent phenomenon, just over 40-50 years old, because before that most of the market was in bulk. And, therefore, economically there has been very rapid growth, and now it is time for consolidation and rationalizaation. On the other hand,” Montezemolo concludes, “a sector that generates a turnover of 12-13 billion euro in production needs structures with an industrial approach to sustain itself. But beware: aggregations do not always create value. Adequate management is needed to manage certain processes and give them continuity and follow-up. And Italian wine still has a lot to invest in this area”.