The Robert Nicholson Interview: US Investment in Bordeaux. More to Come?

Meininger’s: France in general, and Bordeaux in particular, has attracted substantial investment from Japan and then China but, with a few key exceptions, relatively little from the US. why is that?

Nicholson: The strong dollar has recently stimulated interest in Bordeaux acquisitions from US buyers. the historically complicated commercial structure of en primeur in Bordeaux has prevented US buyers from jumping into the market.

Maybe the example of Latour leaving La Place de Bordeaux may stimulate others to consider this alternative route to market.
 

Meininger’s: Château Lascombes was one of those exceptions. Before being bought by the French insurers MASCF who sold it to the Lawrence family, it belonged to Colony Capital, a private equity business. PE interest in California seems to be growing fast with  GI partners and Sycamore and others making acquisitions, and winery sales to PE apparently growing by 75% last year. How attractive do you think the French industry is going to be to other PE companies?

Nicholson: PE has been attracted to US wine acquisitions because of the high returns possible (from some acquisitions). for example, GI partners increased the value of Duckhorn from their original acquisaition price in 2007 of $285m to their sell-price to TSG in 2016 of $750m. That’s a strong return in any business. providing US PE buyers can find classified growth acquisitions that make substantial financial returns (some do) then we will see interest from these buyers.
 

Meininger’s: Colony Capital put Lascombes up for sale eight years after buying it – but had to wait another four for a sale. in the US, there seems to be a trend for PEs intentionally to hold onto their winery purchases for longer than is customary in other sectors. is this the case?

Nicholson: Yes, both  GI partners (formerly owners of Duckhorn & currently owners of Far Niente) and TSG (Duckhorn) have held their investments slightly longer than other PE investments. In the case of  GI partners they exited Duckhorn (with their sale to PE group TSG in 2016) 10 years after their initial investment. TSG took Duckhorn public in 2021 (5 years after their initial investment). from TSG’s initial investment of $750m following their IPO, the market cap of Duckhorn was $2 billion. currently the market cap is $1.7bn.
 

Meininger’s: And what about other US buyers? Do you expect to see more Lascombes-style acquisitions?

Nicholson: Yes, selectively. there may be some interest from US PE and from other high net worth individuals.

That said, in Bordeaux the interest will be exclusively in a few of the high-performing classified growth estates, if and when they come to market. there will be no interest in acquiring under-performing wine assets. These are highly sophisticated buyers who know what they are looking for and understand how to achieve a return from the wine business.
 

Meininger’s: How important is the fall in the value of the euro against the dollar to the appeal of French wine investment?

Nicholson: it is an important consideration for any US buyer. the euro is trading at a two-decade low. The value of French acquisitions has fallen on the currency alone by over 20% since the beginning of 2021.
 

Meininger’s: Many Burgundy watchers were surprised to see Stan Kronke, owner of Screaming Eagle beat eager local bidders to acquire Bonneau du Martray in 2017. Are there ways in which a US buyer might have advantages over French ones?

Nicholson: Stan Kronke understands the fine wine business very well. His 2017 acquisition of Bonneau du Martray, one of Burgundy’s greatest wines, fits well with his US wine investments.

A possible obvious advantage for US buyers may be their access to the large US market (now over 400m cases per year, of which over 30% is imported wines). French American vintners have done a good job through their ownership of Louis Jadot, particularly with their captured import distribution system with Kobrand.

Access to the growing US Direct to Consumer - DTC - market can also provide US buyers with substantially larger margins than will be possible for other buyers of French estates.

Meininger’s: What kind of proposition is a US investor in France likely to be most likely to be looking for? What are the prospects for regions outside Bordeaux, Burgundy and maybe Champagne? Is anyone likely to be interested in Alsace, Provence or Languedoc Roussillon?

Nicholson: US investors will be looking for a financial return on any French wine investment. There may be a few buyers interested in the ‘lifestyle’ acquisition, however, these will be at lower values.

Outside of Bordeaux, Burgundy will continue to have some interest although the stratospheric vineyard values will keep most serious buyers away. There will be some interest in Champagne. and provence, but nominal to no interest in Alsace or Languedoc.
 

Meininger’s: Château Lascombes has had a long list of owners, none of whom have turned it into a high flying second growth. why should Lawrence family succeed where others haven’t?

Nicholson: Gaylon Lawrence has a long-term view. he will tell you that his acquisition of Château Lascombes is generational. I believe that, over time, Lawrence and Carlton McCoy [who runs his wine businesses] will build Lascombes into a super-second. This might take them ten or more years but with the right team and approach Lawrence will be able to do that. They will invest in the vineyard and reduce the quantity of first wine. The quality will improve and they will increase the en primeur price of Lascombes.
 

Meininger’s: Chinese investors in Bordeaux have generally focused on selling the wine they produce to customers in their own market. Is that what you see happening with US buyers?

Nicholson: I understand that Chinese investors in Bordeaux have generally acquired lesser-known properties and sold their wines in China. I don’t see that being the way buyers from the US will approach the opportunity in Bordeaux. They are more likely to develop the US market, however not at the exclusion of the broader global market for Bordeaux classified growths.
 

Meininger’s: In the US, DTC is a hugely important to the super-premium sector. In France it is far less well developed. How would it fit into the strategy of a US purchaser of a French wine business?

Nicholson: Providing the legal issues can be addressed by the US buyer (and they generally can be) a US buyer who has a domestic wine business with a DTC network can find a way to sell French wines DTC.
 

Meininger’s: Château Lascombes is globally distributed by the place de Bordeaux. This model might make sense in some markets, but would it do so to US owners like Lawrence family who are already distributing their own Californian wines domestically?

Nicholson: I am sure that Lawrence will want to develop the US market for Château Lascombes where the wines are quite well known and they already have a growing and good fine wine distribution network. However, I believe that will want to continue to work with the Place de Bordeaux and enjoy the benefits that come with that.
 

Meininger’s: A growing number of members of the baby boomer generation, born between 1946-1964, in California are said to be looking to sell their wineries. Is this true? And if so, might a US buyer be likely to be choosing between a Napa and a Médoc investment?

Nicholson: Yes, as increasingly some winery owners from the boomer generation gracefully age they sometimes decide to sell their properties, rather than pass them on to the future generation. Either they don’t have family to pass their estates on to, or the next generation is not interested and prefers to have access to the capital that comes from a sale.

Buyers who want to acquire a California winery will buy California wineries. Similarly, buyers who want to invest in a Médoc estate will do that.

I don’t think that it will be a question of one or the other. Rather, there are examples of California winery owners such as Gaylon Lawrence who want to invest in Bordeaux, and examples of Bordeaux property owners who want to invest in California, such as Florence and Daniel Cathiard of Château Smith-Haut-Lafitte, Frederic Rouzaud of Louis Roederer & Château Pichon Lalande, Louis Jadot, Henriot Bouchard.

At IWA it is our job to help interested Californians understand the market in Bordeaux and to find estates for them to acquire, as we have done for Gaylon Lawrence with Château Lascombes. then likewise, in reverse, IWA helps Europeans to recognise the opportunity in the US. We present them with opportunities in the US, as we did with the Cathiards who bought Flora Springs in Rutherford, Frederic Rouzaud (Diamond Creek in Calistoga), Louis Jadot with Resonance Vineyard in Oregon, or Henriot Bouchard with Beaux Freres in Oregon.