WINERY & VINEYARD VALUATION
Purpose and Use of Winery Vineyard Appraisal
Purpose and Use of Winery Vineyard Appraisal
–Financing, lender’s collateral
–Financial Reporting (FASB & International Standards)
–Sale or Purchase
–Disputes involving Value
•Dissenting Shareholders, Family Disputes, Divorces, Partnership Dissolutions •Eminent Domain
- –Taxes •Estate Planning, Minority Discounts •Allocations for Income Tax Depreciation •Property Tax Assessment Appeals •Capital Gains Calculations
Understand The Current Economic Conditions
Purpose and Use of Winery Vineyard Appraisal
• Consumer spending and tourism
• Nonfinancial services
• Manufacturing
• Real Estate and Construction
• Banking and Finance
• Agriculture and Natural Resources
• Employment (Federal and California)
• Per capita alcohol consumption on the increase
• Demand for both wine is on the increase
• Industry Cycles
• Consumer Preferences
• General Economic Trends
• Global Factors
Cost Approach Method
–Land as Capital Cost (Return on, or opportunity cost of land)
–Area and site specific costs
- Vines, Trellis, Irrigation, Reservoir, Wells, Pumps, Roads, Fences, Land Improvements
- Facility FF& E (Fixtures, Furnishings, and Equipment)
–Entitlements
–Cost of Capital
–Entrepreneurial Profit
–Depreciation (Living vs. non-living) –“Mature” vs “Developed”
Market Approach Method
Going-Concern Business Value
Sales Comparison Approach:
– Unit of Measure
•Price per Acre
•Price per Ton?
•Price per foot of Cordon ?
– Characteristics Compared
– HOMESITES
(Vineyard Estate consists of Vineyard, Land, and Homesite)
Transaction method:
• Most transactions are private; very difficult to get pricing, terms, other stats on private transactions
• Obtain Merger & Acquisition data
Income Approach Method
Going-Concern Business Value
Going-Concern Business Value
• Most commonly used approach for operating companies
- Capitalized Cash Flows
- Discounted Cash Flows
• Invested Capital methodologies and EBITDA multiples
- Can be high depending on the brand value
- 7x to 10x is not unusual
- Can exceed 12x with exclusive integrated estate wineries, when brand and real property assets are included
Going-Concern Business Value
Going-Concern Business Value
Going-Concern Business Value
Winery types.
There are three primary types of wineries: an integrated winery, a merchant winery, and a hybrid winery. These types can vary in size and organization structure, and each has its own advantages. A merchant winery buys all grapes. A hybrid winery owns a vineyard, however buys a variety of grapes to blend or make their labeled-wines per their likings.
Winery valuation as a going-concern business must consider the following pertinent questions:
1. Are the books maintained on a cash or accrual basis?
2. What inventory costing methodology is being used? (Fifo or Lifo)
3. Where does the winery source its grapes?
4. Are winery and vineyards leased from a related party?
5. What are future capital requirements?
6. Is the winery’s forecast reliable?