Investment Assessment

Financial deals in the wine industry in 2005 were worth over US$22 billion, a massive ten times more than in 1998, yet there is still diversity in control of the market compared to other drinks sectors, according to a market study commissioned by London International Wine and & Spirits Fair (LIWSF) organisers, Brintex.

The results were presented yesterday (4 April): well-timed, given the announcement of Constellation’s acquisition of Vincor on Monday – more of which in the coming issue of db. Jean-Pierre Couderc from Vertumne International et Associés, who prepared the study, explained that the top 3 companies in the wine sector control 7% of the total value, compared to the spirits sector, where the top 3 control 20% of the value. He explained that the financial deals had increased in number as well as value since 1998, equalling 250 last year.

The study highlighted the fact that, despite a decline in Old World exports, nearly half of the financial deals have targeted companies in this region. Another apparent incongruity is that wine and spirits do not have a good reputation for being what Couderc called "fast cash" industries, yet financial investors in these deals have increased by nearly five times since 1998.

Couderc explained that there are a number of reasons for mergers and acquisitions in the industry – that deals were made to ensure grape supply in the long-term, to develop or acquire strong corporate brands, or to control distribution networks.

The report considered the effect of grape oversupply, as well as the effect of an increasing concentration of suppliers on price competition, with regard to the future of financial deals in the industry. Another issue for mergers and acquisitions in the wine industry is the decreasing number of targets for takeover. One of the reasons given in the study for this, is the family-run nature of many wine companies.

This report is one of a number commissioned by LIWSF organisers Brintex over the last six years. "By commissioning reports such as this, we’re aiming to better prepare ourselves for the future, but are also trying to produce a piece of research that can genuinely benefit our exhibitors’ businesses at the same time," says Brintex’s marketing director, Will Broadfoot. "Much internal debate and external advice is sought to establish the study topics each year, but in light of the recent Constellation acquisition of Vincor, I don’t think we could have better predicted the relevance of this year’s report if we’d tried!"

db  April 2006