That Vintage didn't age well! How to torch $600M rolling up wineries

Disclaimer: Unless noted otherwise, views and analysis expressed here are the author's own and based on public sources. The article is intended for informational and entertainment purposes only. This is not financial advice. Please consult a professional for investment decisions.

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Time and again, someone decides to roll up wineries.

We can see the attraction.

The US - the world’s largest wine market - is home to 11,000 wineries (up >5x since 1995) but only 950 wine distributors (down >3x since 1995). Although the production market has become somewhat less concentrated, it is tough for small wineries to get shelf space. 

Buy subscale wineries, centralise bottling and distribution - and presto! Watch the margins take off. Exactly the thought behind Vintage Wine Estates (“Vintage”), formerly “one of the fastest growing U.S. wine producers with an industry leading direct-to-consumer platform” (source). 

Vintage was founded in 2007 by wine industry veterans Pat Rooney (pictured below) and Leslie Rudd (who sadly passed away in 2018). By the time Vintage went public via SPAC in 2021, it had morphed into a vertically integrated, multi-channel wine rollup. 

Between 2010 and 2022, Vintage grew revenues almost 10-fold, to c.$300M.

The SPAC was a success: Vintage listed at a $618M market cap (source). Some investors took comfort from the fact that the Board was chaired by Paul Walsh, the legendary former CEO of Diageo.        

Unfortunately Vintage’s wine empire did not last. After a short rally, the stock began to tank with bad news pouring in. Then in July 2024, Vintage filed for bankruptcy after missing a $61M debt payment. The company delisted the following month. The equity holders were wiped out.  

Why did this happen? 

As we understand it, three factors contributed to Vintage’s rapid demise. 

Number one, as COVID lockdowns eased, US wine sales fell off the cliff, saddling producers like Vintage with excess inventory.  

Number two, the underlying business model was not sustainable. Between 2018 and 2023, Vintage reported $1.1B in cumulative revenue - but a negative $6M in cumulative operating cash flow. In the article, we detail the decisions that likely caused the cash bleed.   

Compounding the first problem was - you guessed it - number three: high leverage. Although Vintage’s absolute debt remained consistent at ±$300M during its short life as a public company, its ability to service debt sharply deteriorated. The SPAC had brought in $250M in fresh funding (source). By March 2024, the cash pile dwindled by 90%, to $24M (source). 

Read on to learn about:

1. Vintage’s business model

2. How Vintage benchmarked against key peer The Duckhorn Portfolio 

3. How Vintage’s “distressed M&A” strategy unravelled

4. How can one lose money producing America’s favourite wine?

5. The big boys have messed up too: meanwhile at Moet Hennesy 

1. Vintage’s business model

Vintage operated 3 main segments: Wholesale, Business-to-Business (B2B) and Direct-to-Consumer (DTC)

• B2B (c.40% of sales at IPO/SPAC): Custom wine production and private label contracts with major retailers such as Costco, Albertsons and Target

• Wholesale (30%): Vintage supplied distributors like Deutsch Family Wine (remember this name!), who in turn sold to retailers and restaurants

• DTC (30%): Selling wine online, through tasting rooms, wine clubs and TV shops like QVC (we will come back to this)

Vintage’s sprawling portfolio included 50 brands (wine as well as spirits and cider); almost 2400 acres / 10 km2 of planted vineyards (40% owned and 60% leased); tasting rooms; and wine clubs. 

Vintage was an odd rollup.

Despite all the acquisitions, it never truly achieved scale, ranking a measly 14th on the US wine producer rankings (based on the number of cases shipped).

At its core, Vintage was a contract manufacturer for retailers and distributors. As we will show, not only were these long-term, fixed-price contracts not very lucrative, but over time they began to cannibalise Vintage’s own brands.    

2. How Vintage benchmarked against key peer The Duckhorn Portfolio

The lack of a moat was the biggest difference between Vintage and its key public comparable The Duckhorn Portfolio (ticker: NAPA). 

The companies went public around the same time. Out of the gate, Duckhorn’s market cap was 4x Vintage’s, reflecting the former’s larger scale (1.5x revenues) and superior unit economics (>10pp higher gross margin and >20pp higher adjusted EBITDA margin).

Crucially, Duckhorn had negligible exposure to the B2B segment, with 100% of its wines being in the luxury segment ($20+ per bottle) vs. only 20% for Vintage.  

To be fair, Duckhorn’s experience as a public company was similarly tumultuous. Listed at $15 a share. Share price happy first run up to almost $24, and then collapsed to sub $6. Finally, Duckhorn was taken private at $11.10/share in December 2024. 

Duckhorn’s IPO investors ended up losing 26% of their investment. Vintage’s investors lost 100%. 

3. How Vintage’s “distressed M&A” strategy unravelled

Vintage considered itself a canny acquirer. Between 2010 and 2022, it completed over 20 acquisitions, bringing the total count to 30.

Let’s examine one: Firesteed, an Oregonian wine brand. Firesteed was acquired in 2017 for $6M - equivalent to the value of inventory. Four years later, Firesteed was reported to be on track to generate $8M+ in sales, at a 50%+ gross margin. 

More deals like this followed, based on a simple playbook:

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