GI Partners reportedly bought Duckhorn for ~$250 million in 2007 and invested ~$60 million into the company over the next decade by expanding its estate vineyard portfolio by 350 acres and building/buying winemaking facilities. As we heard yesterday, they also introduced several new brands into the Duckhorn portfolio during this period. Duckhorn thrived under GI's ownership and it's reported that TSG Consumer Partners paid around $600 million to acquire the company in August 2016.
This is an incredible transaction for Duckhorn, especially considering that all employees were retained and Dan and Margaret Duckhorn were able to remain involved as well. However, the exit opportunities for TSG seem less appealing. We've discussed in class the numerous reasons why wineries aren't ideal IPO candidates and it seems unlikely that a third consecutive financial owner would make sense. This leaves strategic buyers as the most likely option and the universe of strategic players that could afford Duckhorn is quite small (e.g., Constellation Brands). TSG's track record of growing brands is undeniable, but it seems like a risky acquisition to me given the "low hanging fruit" already picked by GI and the limited buyer universe moving forward.
Matt-
ReplyDeleteGreat post and I couldn't agree more. I left Thursday's class feeling like the management team, employees, and GI Partners had executed wonderfully on GI's growth strategy, culminating in an outstanding liquidity event. However, I was left wondering how TSG could capitalize. Your post sums it up really well.
I also am curious about the remaining growth opportunities for Duckhorn given their desire to not drop below a $20/bottle price floor. Their EBITDA remained strong, driven primarily by top-line growth, but I wonder how much room is left to grow given increasing competition in the space (CannonBall, DTC, Angels and Cowboys). If anyone can pull off a successful consumer-related transaction, I'm sure it's TSG; however, I would rather have been a part of the GI Partners Transaction.
I am reminded of a Jeff Chambers quote from Formation of New Ventures. He was speaking about his many experiences as an Investor at TA Associates.
"We've tried to predict when to exit an investment. Really hard to do. We've sold too early, and we've sold too late. We prefer to sell too early."