Treasury Wine Estates (ASX: TWE) is firming up its foothold in the US luxury wine market through a US$900 million ($1.4 billion) acquisition of California’s DAOU Vineyards.
The deal comes on the heels of the $434 million buyout of high-end Californian wine maker Frank Family Vineyards in 2001 and amid promising signs that the Chinese market could reopen for the group's Australian wines following a review of crippling tariffs over the coming months.
The deal for DAOU Vineyards, the largest acquisition by Treasury since the company was spun off from Foster’s Group in 2011, could ultimately be worth as much as US$1 billion ($1.57 billion) through a US$100 million earn-out fee to DAOU Vineyards should it meet prescribed profit targets.
Treasury says the acquisition of DAOU fills a key portfolio gap of wines selling for US$20 ($31.40) to $US40 ($62.80) per bottle in the Americas and strengthens the company’s existing luxury portfolio above US$40 per bottle.
It also provides the company with the scale it needs to support a future standalone Treasury Americas Luxury division.
The acquisition, which Treasury says will be earnings accretive in its first full year while offering cost synergies of more than US$20 million ($31 million), will be funded through an equity raising and a new bridging debt facility.
To that end, the company has simultaneously announced an $825 million entitlement offer, a $157 million placement of new Treasury Wines shares to be issued to the existing owners of DAOU, and US$311 million ($488 million) of debt with the establishment of a new US$350 million ($550 million) acquisition bridge facility.
Treasury Wines CEO Tim Ford says the acquisition accelerates the company’s ‘luxury-led portfolio premiumisation strategy’ as the luxury portfolio now contributes 50 per cent of group net sales revenue.
“The combination of Treasury Americas and DAOU creates a leading luxury wine business in the United States, the world’s largest luxury wine market which is growing strongly, with an unparalleled portfolio of highly acclaimed and admired luxury brands,” Ford says.
“We continue to see strong long-term growth trends for luxury wine in TWE’s key global markets, with a significant value creation opportunity leveraging and building on the strengths today of TWE, Penfolds, Treasury Americas and DAOU to create a multi- brand global luxury wine business of scale.”
DAOU Vineyards had its origins in 1998 after founders Georges and Daniel Daou sold their networking technology company DAOU Systems.
The Lebanese immigrants came to the US in the early 1980s after their family first relocated to France, which is where the Daou brothers drew their inspiration to create their Californian winery.
In a joint statement, Georges and Daniel Daou say the acquisition by Treasury fulfills a long-held vision when they established their eponymous wine brand.
“The last frontier has always been international, and as part of the Treasury Wine Estates portfolio, we have unlocked the potential to be amongst the highest-end wines for consumers to enjoy globally,” the DAOU Vineyards founders say.
“In Treasury Wine Estates, we have found a partner that not only understands the value of our brand and the premium assets we have cultivated but also the importance of ensuring that we maintain a relentless focus on quality and craftsmanship as we step into our future.
“Both companies are change leaders and by joining forces, we will continue to boldly disrupt the industry and bring the very best in wine and luxury experiences to consumers around the world.”
Treasury says that the Daou brothers plan to maintain an involvement in the business once the acquisition is settled.
DAOU Vineyards, which was officially established in 2007, is based Paso Robles, California, and is said to be the fastest growing luxury wine brand in US trade over the past year.
DAOU owns the DAOU Mountain Tasting Room, four luxury vineyards, four wineries and 411 acres of vineyards in the Paso Robles region where Treasury Wines has an existing sourcing and production base.
The company has five product tiers and luxury price points from US$20 ($31.40) to US$500 ($785) per bottle, which are sold via multiple sales channels.
DAOU is forecast to deliver NSR (net service revenue) of US$212 million ($332.8 million) in CY23, with EBITS of US$63 million ($98.9 million) and an EBITS margin of 30 per cent.
Treasury says its Americas business has a deeper luxury distribution footprint across the US, leaving it ‘uniquely placed to drive continued expansion of the DAOU portfolio’.
The DAOU acquisition, which is expected to settle before the end of this year, is targeted to contribute EBITS of between US$23 million ($36.1 million) and US$25 million ($39.2 million) in the second half of FY24.
Get our daily business news
Sign up to our free email news updates.