October 15, 2024

By Gerelyn Terzo, Global AgInvesting Media

In a sign that private capital is beginning to move off the sidelines, Butterfly Equity, a Los Angeles-based private equity firm specializing in the food sector, is acquiring North American luxury winemaker Duckhorn Portfolio. The all-equity $1.95 billion transaction will see the publicly traded target company return to its private market roots. In what GAI News has learned was the PE firm’s biggest investment to date, Butterfly Equity, through one of its funds, agreed to pay $11.10 per Duckhorn share, reflecting a premium of over 100 percent based on the winemaker’s closing share price on Oct. 4.

Alcohol beverage consultant Taylor Harrison commented on the deal, saying, “The Duckhorn Portfolio joins an interesting group of previous investments including QDOBA and Chosen Foods. This appears to be Butterfly Equity’s first investment in the alcohol business. Exciting for the industry.”

Founded in 1976, and upon introducing its debut vintage of Napa Valley Merlot a few years later, Duckhorn’s portfolio comprises brands such as Duckhorn Vineyards, Decoy and Sonoma-Cutrer Vineyards (via acquisition last year), to name a few. With nearly a dozen brands in its vast wine portfolio, selling anywhere between $15 and $50 per bottle, Duckhorn is viewed a very strong business by the buyer, one through which Butterfly Equity will look to M&A as a way to add to its growth.

Duckhorn is considered uniquely resilient because of its diversified and flexible model for sourcing grapes. One of the reasons Butterfly Equity found Duckhorn so attractive was its asset-light, structurally advantaged business model. Duckhorn has limited direct ag exposure considering 90 percent of its grapes are sourced from third-party growers and bulk suppliers. This model worked to the target company’s advantage, considering the timing of the deal coincides with a grape market downturn.

California’s North Coast wine grape market has been sent reeling of late amid a supply/demand imbalance exacerbated by downward pricing pressure. According to WineBusiness Monthly, vineyards are grappling with a tight and costly labor market while the threat of wildfires continues to loom. Glenn Proctor of grapes and wine broker Ciatti is cited by the North Bay Business Journal as saying that popular wine types including Cabernet Sauvignon, Zinfandel and Pinot Noir are suffering a “massive market correction” owing to an oversupply of fruit in the Golden State, whose massive wine industry is worth $55 billion. The grape market downturn is not limited to California, and history suggests a recovery could be on the horizon while the industry pivots to shifting consumer preferences.

Meanwhile, as of H1 2024, global PE and VC firms were sitting on $2.62 trillion in dry capital, an all-time high, per S&P Global and Preqin data. With the Federal Reserve’s pivot to more dovish monetary policy, asset managers are more inclined to do deals. Perhaps Butterfly’s acquisition of Duckhorn is a harbinger of more PE deals to come. KKR & Co. Co-CEO Scott Nuttall stated on the company’s Q2 earnings call, “The macro, inflation and rates backdrop has improved, markets are open — and the deal market is back.”

Of the deal, Butterfly Co-Founder and Co-CEO Adam Waglay said, “This is an incredible opportunity, and we look forward to bringing our specialized expertise and deep food and beverage network to bear to help amplify and accelerate the company’s mission to have their wine poured wherever fine wines are served throughout North America and the world.”

Butterfly Partner Vishal Patel stated, “As a leading pure-play luxury wine producer, Duckhorn has, in our view, the best portfolio and strongest fundamentals in the industry. We believe the company’s curated suite of luxury wine brands, structurally advantaged business model, and world-class team have laid the foundation for a powerful, scalable platform, which will continue to drive growth both organically and through strategic acquisitions.”

Duckhorn Portfolio debuted on the New York Stock Exchange in 2021 under the trading symbol NAPA, listing for $15 per share. Over the past 52 weeks, the share price has languished between $5.38 on the low side and $11.08 on the high side.

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