Australian Vintage confirms merger talks with wine giant Accolade’s new owners

A merger between Australian Vintage (ASX: AVG) and Accolade Wines could be on the cards with the listed owner of the McGuigan, Tempus Two and Nepenthe brands confirming that it has undertaken ‘exploratory discussions’ with the private-equity-backed producer of the Hardys, Petaluma, and Grant Burge labels.

The merger proposal comes amid a massive upheaval of Australia’s wine sector with Accolade announcing earlier this month that UK-based Carlyle Group, which acquired Accolade for $1 billion in 2018, has been sold to Australian Wine Holdco Limited (AWL), a consortium of institutional investors.

Australian Vintage, which managed to lift underlying earnings in the December half-year despite a drop in revenue, last week hinted that a merger was among the initiatives it has identified to deliver sustained earnings growth in a challenging environment.

Australian Vintage today confirmed media speculation that it was exploring a merger with Australia’s second-largest wine producer.

“AVG confirms it is in exploratory discussions with Accolade, however these discussions are still at a very early stage, and there is no certainty that any transaction will eventuate,” says Australian Vintage in a statement to the ASX today.

“AVG will continue to update the market in accordance with its continuous disclosure obligations.”

A potential merger with Australian Vintage is being negotiated at a critical time for Accolade Wines just weeks after the company revealed the AWL buyout as part of a recapitalisation plan to ease its debt burden.

AWL is backed by Accolade’s existing financial partners Bain Capital Special Situations, Intermediate Capital Group, Capital Four, Sona Asset Management and Samuel Terry Asset Management. Financial details of the buyout have not been disclosed.

“Like all Australian winemakers, we have been hit by a number of challenging macro-economic and industry headwinds in recent years,” said Accolade Wines CEO Robert Foye when announcing the AWL acquisition of the company earlier this month.

“Despite our strong stable of brands and leadership positions in key markets, as well as operational measures taken to strengthen the business, our ability to respond to these challenges and grow has been hampered by an unsustainable balance sheet.”

Australian Vintage posted a net profit of $2.78 million in the first half of FY24, down from $12.9 million a year earlier, which CEO Craig Garvin says was in line with expectations.

“Given the trading environment, and the challenging industry conditions, I am very encouraged we have been able to maintain revenue in line with the prior year and improve earnings in contradiction to industry trends,” said Garvin when announcing the half-year result last week.

While Australian Vintage managed to lift margins and underlying earnings, the company also noted that emerging business in high value markets remains a key strategic focus for the company. Among initiatives announced to improve profitability are the implementation of greater efficiency through scale while better managing cost structures.

“AVG is in the process of executing the initiatives, where appropriate, however larger transformational opportunities, including potential mergers, are still in very early stages,” the company said in comments accompanying the latest profit result.

A merger with Accolade Wines will create a company with annual revenue of about $1 billion, as Accolade delivered revenue of about $820 million in 2022. At this stage, it remains unclear whether a potential merger will lead to the privatisation of Australian Vintage, which is currently valued at $88 million, or whether it will lead to an ASX listing for Accolade’s assets.