Thursday, March 23, 2006

Screaming Eagle - Some Estimates of the Numbers

I saw an estimate on Fermentation that Screaming Eagle sold for 100x profits and I also received a couple of emails asking about the numbers, so I thought I'd throw out some estimates (these are gross estimates only from my experience and could be waaaay off, but should be useful for the purposes of discussion).

First, let's look at the vineyard, 60 acres from which they produce ~5,000 cases. Let's assume they bring in 1,000 cases worth to have sufficient barrels from which to chose the final blend (very common). If they farm for $7,000 per acre (all hand-work, lots of passes to drop crop, work the canopy, etc), hire a $100,000 per-year vineyard consultant and yield 3 tons to the acre (hey, this is high-end stuff, gotta have maximum intensity per berry!) then the "excess" fruit they sell would generate $300,000 in farming profits. Nice, but wait 'til we look at the winery...

In the winery, let's assume $100 per case of general cellar costs (on all 1,000 cases), a $200,000 per year consulting fee to Heidi Barrett and $25 per case for those sexy bottles and labels, we've got total product costs of $460,000. Subtracting that from our sales (6,000 bottles x $300 per bottle), we get winery profits of $1.3 million, something one could live off if one cut back slightly and cut coupons.

Let's assume there is another $200,000 of overhead to manage the mailing list, TTB compliance etc. and we're still left with $1.4 million in annual profits.

The Wine Spectator suggested that the total transaction might be $20-40 million.

At $20 million, that would be a multiple of 14 times net profits, pretty reasonable since that's about the same multiple that Constellation paid for Ravenswood.

At $30 million, that would be 21 times earnings, not completely unreasonable as Franciscan sold for 18 times, and Peter Lehmann sold for 20 times, neither of which has the ScrEagle "pedigree".

At $40 million, that would be 28 times earnings. The highest multiple I've ever seen was Allied-Domecq's reported multiple of 24 times for Montana in New Zealand (something they later admitted they had overpaid for). However, this price is still possible considering that the new owners may take advantage of that "excess" fruit (notice how much more money the 15 tons that went into the winery made vs. the 160 tons that were sold in the above hypothetical) and sell more wine or create new brands. In other words, paying a price like that is not out of the realm of possibility, particulary considering we're talking about a wine that ultimately hits a "street price" of over $1,000 per bottle. Logic has little place there.....


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