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No Surprise that it is Private Equity that Bids for Treasury Wine

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Following much speculation around bids for all or part of Treasury Wine Estates, it is of little surprise that the only concrete offer for the company has come from the private equity house KKR rather than a wine company. KKR is looking to take advantage of Treasury’s weakened position following its US debacle to gain the company at a good price and look to make money through rationalisation and reform, such as CHAMP did with its acquisition of what is now Accolade Wines.

As laid out as far back as three years ago in a briefing How Wine Companies Can Become Global, the key focus for wine companies has switched from growth through acquisition to a more organic approach. Indeed many companies since the turn of the decade have been looking to rationalise their brand portfolios, such as Constellation Brands’ divestment of its UK and Australian operations, to private equity house CHAMP or Pernod divesting various brands such as Lindauer.

This has been a big change from the late 90s early 2000s where wine companies such as Treasury (formerly Foster’s) made numerous acquisitions based on the belief that wine was like other consumer goods categories and having a plethora of brands would help turn these companies global.

However, the category’s low margins, particularly in markets such as the UK and Australia, lack of brand equity/loyalty and difficulty in building it due to the low profitability made sure that this strategy could not work.

Thus wine companies, such as Treasury Wine Estates, have increasingly focused on a number of core brands which have different price points and looked to develop them by focusing their resources on them, just as Viña Concha y Toro has done with its eponymous brand. What acquisitions there have been by wine companies in recent years have focused on small niche high end wineries, brands in fast growing categories in core markets or distribution, as in the case of Viña Concha y Toro’s acquisition of Fetzer.

Whether KKR wins control of Treasury Wine will depend on whether this or future offers are sufficiently high for Treasury’s board to accept, but sufficiently low that it can make money when it sells it on in the future. What is certain, is that if there is any counter bid it will not come from a major wine company, but most likely from another private equity house.

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