On Monday October 7th 2024, California-based private equity firm Butterfly Equity reached an agreement to acquire North American luxury wine company The Duckhorn Portfolio. This was an all-cash transaction worth approximately $1.95bn, with Duckhorn shareholders receiving $11.10 per share. JP Morgan acted as financial advisor to Duckhorn, while KKR Capital Markets acted as an advisor to Butterfly. The transaction is expected to close this winter, subject to regulatory approval.
Founded in 2016, Butterfly focuses exclusively on the $26 trillion food and beverage industry and is a prominent investor in the 'seed to fork' food ecosystem across North America. The company boasts a diverse portfolio of food brands with an estimated enterprise value of around $5bn, including Milk Specialties Global, Chosen Foods, and MaryRuth Organics. Butterfly seeks to partner with category-leading food and beverage companies to generate consistent returns, with their most recent acquisition being as recently as September 2024, reaching an agreement to purchase Rise Baking Company.
The Duckhorn Portfolio, established in 1976, is a leading pure-play luxury wine producer in the United States, possessing a curated portfolio of premium brands such as Duckhorn Vineyards, Decoy, Sonoma-Cutrer and Kosta Browne, with price points ranging from $20 to $230. Duckhorn’s geographical coverage is large, with its wines sold on five continents, in over 50 countries.
The strategic rationale behind the acquisition lies in Duckhorn’s strong market position and consistent sales growth. Duckhorn’s net sales rose by 7.3% in the last quarter, with a strong gross profit margin of 47.8%. Vishal Patel, a partner at Butterfly, described Duckhorn as having “the strongest fundamentals in the industry”, with “a business model and world-class team that have laid the foundation for a powerful, scalable platform”. This reflects Butterfly’s ambition to capitalise on Duckhorn’s growth and established position in the US luxury wine market, by scaling their operations. The acquisition also offers an opportunity for Butterfly to diversify their portfolio, with no prior activity in the wine industry despite their vast presence in food and beverage.
Regarding the financial details of the deal, Butterfly paid Duckhorn shareholders a large premium, equal to 106% of the share price at close on the Friday prior and a premium of 65.3% to the volume weighted average share price of Duckhorn’s common stock over the 90 day period prior. Given that the financial details of the majority of acquisitions in the wine industry are undisclosed, it is difficult to compare this premium to precedent transactions. However, the premium was above the typical range of 30-40% in the Consumer and Retail segment, reflecting Butterfly's strong confidence in Duckhorn's market position and growth potential. Duckhorn’s shares were up by 101% at $10.89 following news of the acquisition, showing the positive investor sentiment regarding the deal.
The acquisition seems promising considering the benefits to both parties. Butterfly are able to diversify their portfolio and take advantage of Duckhorn’s premium position in the luxury wine market, while Butterfly’s expertise in strengthening its portfolio companies will allow Duckhorn to scale their operations and improve efficiency. It will be interesting to observe how Butterfly will enable Duckhorn to better navigate emerging challenges in the industry, such as rising costs and the everchanging nature of consumer preferences.
Written by: Akhil Raghavan
Sources: Reuters, Yahoo Finance, Press Releases, Private Equity Wire
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