Bloomberg News

Private Equity Wake-Up Kiss for Mayacamas: Elin McCoy

July 15, 2013

Mayacamas Vineyards

Mayacamas winery's vineyards, planted in the cone of a collapsed volcano, at the winery on Mount Veeder. The winery is named for the the Mayacamas mountain range that separates Napa Valley from Sonoma. Photographer: Elin McCoy/Bloomberg

As my car climbs the steep road to Mayacamas winery on Napa’s remote Mount Veeder, I’m recalling its classic cabernets and chardonnays. Amazingly long-lived and complex, they’re under-the-radar and undervalued for their ‘first-growth’ quality. Is all that about to change?

In April, Bob Travers, the Californian winery’s owner for 45 years, sold the 465-acre (188 hectare) property to Charles Banks of San Francisco-based private equity firm Terroir Capital LLC, his wife Ali, and retail entrepreneur Jay Schottenstein and his son Joey.

Mayacamas fans worry they’ll spoil the very traditionally made wines and push up the prices to increase profit.

“Oh no! Goodbye Mayacamas,” Lyle Fass, owner of online retailer Fass Selections, wrote at www.wineberserkers.com.

Banks, a former co-owner of Screaming Eagle, hired Andy Erickson, who once made that cult winery’s $750 red, as winemaker.

“I’d hate to see Mayacamas Screagle-ified,” wrote New Yorker Corey Miller in another post.

This kind of sale is a familiar tale in wine country today. Many family boutique winery owners want to retire and their kids don’t want or aren’t able to take over. Others, after recovering from the recession, don’t want to experience another wine cycle like that, says Mario Zepponi, owner of wine industry merger and acquisition advisory firm Zepponi & Company.

According to Silicon Valley Bank’s State of the Wine Industry 2013 report, “More transitions, sales and mergers are taking place than at any time in memory.”

Investors are sniffing around for deals.

Coors Family

In May, Colorado-based Golden Equity Investments, owned by the Coors family, snapped up Napa’s Goosecross Cellars, which sells direct to consumers.

That same month, private equity fund Bacchus Capital Management, founded in 2007 by Sam Bronfman, Peter S. Kaufman and Henry F. Owsley, acquired Oregon winery Panther Creek Cellars and invested in Washington State’s DeLille Cellars. They’ve made nine deals so far.

“Our first fund has come to an end,” says Kaufman. “The market has stopped looking at us like we’re some strange animal at the zoo. We think we could deploy $100 million to $200 million in the next one.”

Banks’s Terroir Capital, which purchased Noble and Mulderbosch wineries in South Africa two years ago, has recently invested in two California wineries, including Sonoma’s Wind Gap.

No Swift Return

I’m wondering if private equity investors, who generally expect a swift return on their money, will be good or bad for boutique wineries. Making great wine is a notoriously long-term business.

“Mayacamas isn’t part of Terroir Capital’s portfolio, Banks says. “That only invests in things with a clear path to profitability. Mayacamas will never achieve a reasonable IRR (internal rate of return). It’s a passion play, not a business play.”

The profit maker in the Mayacamas deal may be the real-estate possibilities. Eventually, non-vineyard acres could be developed for residential properties.

On my visit, I find Erickson in the historic stone cellar, crammed with old barrels. It looks just the way it did decades ago. We head off on a tour of the 57 acres of vines, planted in the crater of a dead volcano, in his Honda Pioneer 700 utility vehicle. It plunges down terrifying rutted inclines with the ease of an army tank.

High Breeze

The high vineyards, at 1,800 to 2,500 feet above sea level, and a cool breeze even on this 83-degree day are what give Mayacamas’s wines their distinctive character. I spot plenty of dead vines.

“We’ll need to spend millions slowly replanting,” Banks had said on the telephone. “It’s not a crazy redo.”

The cabernets are famously tannic, requiring a decade or so to soften and reveal deep aromas and flavors of black truffles, tobacco, earth and smoke. The Bordeaux they most resemble is La Mission Haut Brion. At $65 a bottle, the herb-scented, brooding 2007 Mayacamas is a steal. The complex, lemon-and-minerals 2010 Chardonnay is a mere $30.

“The power and finesse of the great 1970 and 1974 vintages are what we keep in mind,” Banks says. “We don’t want to change the style.” He said that he hopes prices will double within 10 years.

Stockbroker Buy

Founded by a San Francisco pickle merchant in 1889, Mayacamas established its modern reputation after former stockbroker Travers and his wife Elinor bought it in 1968.

While the wine world spun with new winemaking fads, Travers ignored them. Ironically, some wineries are coming back to his balanced style.

None of the principals at Bacchus Capital has made the kind of quasi-personal investment that Banks has with Mayacamas. The company’s goal is making really good returns for its customers on every deal. “We marry excellent brands with growth potential with iconic winemakers, and maximize value,” Bronfman says.

Zepponi says “the short time frame from investment to sell off expected by most private equity investors doesn’t always work in the wine industry.”

I have my fingers crossed that Banks continues to think long-term for Mayacamas.

(Elin McCoy writes on wine and spirits for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are her own.)

Muse highlights include Richard Vines on food, Jorg von Uthmann on French culture, Elin McCoy on wine, Robert Heller on music and Craig Seligman on books.

To contact the writer of this story: Elin McCoy at elinmccoy@gmail.com

To contact the editor responsible for this story: Manuela Hoelterhoff at mhoelterhoff@bloomberg.net.


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