wine sales

Analyzing the 2024 Duckhorn Transaction

Since the sale of Duckhorn to private equity firm Butterfly was announced on October 7 for almost $2 billion, many have questioned the basis for this valuation. Of course, this is almost double the valuation placed on the company by the public market the week before the deal was announced. When one looks at the details of the deal, the valuation is in line with recent private winery transactions.

What did Butterfly buy?

  • 2,250 acres of vineyard (mostly Napa, Sonoma and Anderson Valley) at an estimated value of $300 million.
  • $500 million in annual sales[1], $250 million in gross profit and $120 million in EBIT.
  • Annual sales of 3 million cases.
  • A stable of very strong brands.

What are the resulting valuation multiples? [2]

  • 3.4 times revenue
  • 6.8 times gross profit
  • 14.2 times EBIT[3]

What does this mean?

  • The public market doesn’t understand the premium wine business. What’s new?
  • Private equity continues to have interest for strong wine industry players and the long-term viability of the premium wine business.
  • Although the valuation is in line with other winery transactions, the value is higher than other transactions of consumer goods companies of similar size and profile. Could it be the “sizzle” of the premium wine business and the long-term asset appreciation of production facilities and vineyards?

With Butterfly do we have a new wine industry M&A player?

[1] Financial results and case sales are for the fiscal year ended July 31, 2024 adjusted for a full year of Sonoma Cutrer which closed April 30, 2024.

[2] Our methodology reduces the gross value of the transaction by the value of the vineyards to calculate the multiples.

[3] EBIT (earnings before interest and taxes) is used here rather than the commonly used metric of EBITDA (earnings before interest, taxes, depreciation and amortization). Analysts use EBTIDA as a proxy for free cash flow. However in winery financial statements, total depreciation is rarely itemized, and often includes barrel depreciation expensed in COGS. From an economic standpoint, barrels should be treated as a cash production cost since 25% to 35% of barrels are typically replaced annually. Thus EBITDA in winery financial statements where barrel depreciation is included may overstate free cash flow as it is typically understood in financial analysis.  EBIT allows for more consistent comparison between transactions.