Wall Street is preparing for a wine party.
It’s been decades since one of California’s fabled wineries tried to go public. That’ll change this week, however, as Napa Valley’s Duckhorn portfolio looks to raise up to $ 320 million through an IPO of shares slated for Thursday.
The St. Helena, California company began making Merlot wines in the Napa Valley 45 years ago. Since then, it has expanded to nearly a dozen luxury brands, including Duckhorn Vineyards, Decoy, and Greenwing in Washington state $ 20 to $ 200.
Duckhorn plans to sell 20 million shares to the public on Thursday at a price of $ 14-16 each by listing shares on the New York Stock Exchange under the symbol for the first time
NAPA, + 0.94%.
Here are five things you should know about going public:
1. Duckhorn’s brands are a luxury product
However, many of his wines are also available in grocery stores, particularly in California, where around 24% of net sales were made in wholesale in fiscal 2020, according to S-1 filing.
“2020 was a very challenging year for many wineries around the world,” said Stephen Rannekleiv, a Rabobank strategist and head of the global beverages sector.
Americans continued to drink wine during the crisis, however, which gave an advantage to larger wineries with strong off-site sales, especially those with well-known names who recognized customers in stores.
“They didn’t go to a restaurant looking for niche wines,” Rannekleiv said of wine drinkers last year. “They went shopping in grocery stores looking for tried and trusted brands.” Duckhorn sales reached $ 271 million in fiscal 2020, which ended July 31, up approximately 12% year over year.
2. The IPO route is not open to every winery
With interest rates low today, investors are looking for riskier assets to generate return – even if that means they’ll have to wait longer for a return. That doesn’t mean, however, that investors should expect new IPOs to come from famous Napa Valley wineries, largely because most of the nation is valued 11,000 wineries are too small and produce fewer than 5,000 cases, according to Wines Vines Analytics.
“It’s probably been more than 20 years since we had a wine IPO,” said Rob McMillan, executive vice president and founder of the Silicon Valley Bank’s wine division, adding that some famous California IPOs had problems afterward in the 1990s had.
The Robert Mondavi Corp. went public in 1993, but after its share price fell, it finally did sold to beverage giants Constellation Brands
STZ, + 0.33%.
Sonomas Ravenswood Winery Inc. made a rocky public debut in 1999and got caught by this January E. & J. Gallo winery along with 30 other brands in one of the largest acquisitions in the history of the wine industry.
3. Wine and Wall Street don’t always mix
The agricultural nature of the wine business makes it difficult for producers to provide quarterly guidance to investors.
“Wineries have a tremendous amount of assets lying around for long parts of the year,” said McMillan, referring to the active growing and harvesting times, but also the tendency for wineries’ revenues to come in at the end of the year.
If all of your sales are in the fourth quarter but close to zero in the first quarter, operating as a public company can be difficult, according to McMillan.
That is also the reason why only about two dozen wine companies are currently listed as listed companies worldwide. This means that few sell-side analysts offer investors insights into the industry or stock values.
4. “Blank check” companies are circling
The boom in SPACs (Special Purpose Acquisition Companies) or blank check companies going public has led to speculation that everything from commercial properties to wineries is up for grabs.
At least that’s the strategy behind Vintage Wine Estates in Santa Rosa, California, which is also planning to go public in May under the ticker VWE. reports Barron.
“There is so much money in the market looking for good assets,” said Rabobank’s Rannekleiv, who published this chart on the tens of billions of SPAC funds announced since last year.
Era of the SPACs
Rabobank Q1 Wine Report
5. World War II as a drinking reference
Looking ahead, McMillan said he was fairly optimistic about the wine industry, especially after a brutal year due to COVID-19 and forest fires that burned parts of the Napa Valley.
“I believe the wine industry will see a pretty good increase in sales volume for the wine industry through 2020 when we see reopenings,” he told MarketWatch.
“People have said it will be like the 20s. I like to take the end of World War II as an example because we have up-to-date data on what happened to wine sales at that point, ”he said, adding that wine consumption is high when service members return from the war rise.
“We drank it all,” he said of US wine stocks, which can take years to replenish, unlike beer or spirits. “People wanted to let off some steam.”