Wine Business
With Rombauer Acquisition, E & J Gallo Farms 1,500 Vineyard Acres in Napa Valley
The sale of Rombauer Vineyards to E.&J. Gallo this summer remains one of the wine world’s most significant transactions of 2023 as the end of the year approaches.
It solidifies Gallo’s position as the fourth largest vineyard owner in Napa Valley, after Treasury Wine Estates, TIAA Silverado Investment Management Co, and the Laird Family.
The purchase price for the family-owned, integrated wine estate, which the late Koerner and Joan Rombauer founded in 1980 in the Napa Valley, has not been disclosed. It is fair to say that the world’s biggest winery paid hundreds of millions of dollars for the renowned Chardonnay producer.
The deal included three production facilities, two tasting rooms – including the one at Rombauer’s home winery near St. Helena, and 700 acres of vineyards in St. Helena, Calistoga, Carneros, Atlas Peak, Sonoma Valley, and in the Sierra Foothills.
The Price
Deeds filed in Napa, Sonoma, Amador and El Dorado counties indicate Gallo paid roughly $140 million for Rombauer’s real estate properties. However, the true figure is probably higher and doesn’t include the value of the brand, wine inventory, equipment, or other assets.
How much Gallo paid for the beloved brand, known for Chardonnay with a buttery taste profile, is difficult to discern.
Theoretically, if the price paid was a multiple of fourteen times a hypothetical operating income of $45 million, the price might be on the order of $630 million. Industry sources have said the rumored price is between $600 and $700 million. Still, those who know the price are bound by confidentiality agreements and can’t talk, while those who can talk about the price probably don’t know.
The Vineyards
Among other Napa Valley assets, E & J Gallo owns Louis M. Martini; William Hill Estate; the Pahlmeyer brand; as well as Stagecoach Vineyard, purchased in 2017, reportedly for $235 million. Stagecoach included 600 acres of contiguously planted vines straddling Pritchard Hill and the Atlas Peak appellation with additional plantings in the works.
Gallo now farms roughly 1,500 planted acres in Napa County.
Rombauer acquired about 200 acres outside Napa County in 2022 and early 2023. Rombauer announced the acquisition of three vineyards in April 2022 totaling 154 vine acres in Carneros-Sonoma, Sonoma Valley and Fiddletown.
The vineyards, the company said, included the Carriger vineyard in Sonoma Valley; the Haire vineyard in Carneros-Sonoma; and a historic 90-acre Zinfandel vineyard in the Fiddletown American Viticultural Area in the Sierra Foothills.
In January 2023, Rombauer also announced acquiring Carriger Two, another vineyard planted with 54 acres of Sauvignon Blanc in Sonoma Valley.
Rombauer sourced Chardonnay fruit from the Haire vineyard for two decades. The company also sourced Sauvignon Blanc from the Sonoma Valley vineyards known as Carriger and Carriger Two.
Rombauer was also a major producer by Napa Valley standards, able to produce up to 1.65 million gallons of wine a year in Napa County, according to presentations that were made before the Napa County Planning Commission. Its biggest production facility is near Napa County Airport. That facility can produce up to 1.2 million gallons of wine annually while the winery at Rombauer’s home base near St. Helena can make up to 450,000 gallons of wine a year.
Making a Statement
The sale of Rombauer continues to be cited as one of the more remarkable mergers and acquisitions of 2023.
“It is one of the most significant transactions of the year,” said Erik McLaughlin, CEO, Metis LLC in Walla Walla, Wash. “It is not surprising though, with Rombauer going through a generational transfer and being the perfect size and market position for the direction that Gallo is headed with their business,” McLaughlin added.
Pat DeLong, founder and principal of Azur Associates, said the purchase makes a “very large statement” about E & J Gallo’s belief “in the premium segment of the wine business.”
Great vineyards and real estate holdings were included in the transaction, DeLong said. However, the transaction was about owning a “specific leading brand in an important category and price segment of the wine business,” he said. “Very few wine brands achieve this.”
The acquisition by a family-run, privately held wine company, “is a great outcome for Rombauer as a brand and Napa Valley as a whole” DeLong said. Public companies face quarterly earnings pressure; most eventually leave the wine industry, he said. Private equity firms bring new capital into the wine category. However, they eventually sell too.
Gallo “will certainly not have a short hold period for Rombauer,” DeLong said.
Earlier this year, Rombauer released a 2021 Pinot Noir from Santa Lucia Highlands sourced from five vineyards in Monterey County.
Jenny Heinzen, a broker based in Paso Robles, called Rombauer’s sale to Gallo a “fantastic match.”
“The sale is significant and a positive indicator for the California wine business ecosystem,” she said.
Heinzen does not anticipate much, if any, direct effect on the Central Coast. Still, she noted that Gallo sources fruit in Monterey County. If Gallo grows the brand, it may purchase more grapes from that area, she said.
Gallo/Rombauer’s tasting room near Plymouth in unincorporated Amador County is very popular, Plymouth Mayor Marianne Akerland said. Plymouth, she said, “very much values” its relationships with wineries near the city.
“The tasting room for Rombauer is very popular and we’re delighted to be a neighbor! I look forward to (Gallo’s) continued presence in the area,” Akerland said.
Look for an end-of-the-year M&A roundup in the December 23’ WineBusiness Monthly.