Thinking of selling your winery? First, listen to the experts

Wines & Vines, Sept, 2003 by Thomas G. Dolan

You've run your business for many years, have been thinking about retiring, and receive a call from someone who wants to buy you out. You think, "Well, if the price is right, it won't hurt to talk to him. What can I lose?"

Everything.

"The minute you sit down with that potential buyer, you put him in the driver's seat," says Tom Fehere, president, ACT Consul tants, Bellevue, Wash. "He'll tell you what he's willing to pay. Either you accept his offer or you don't. That's the extent of your options." But then take it to the next step, Fehere continues. "Suppose you refuse his offer and he's miffed? If your suppliers, customers and employees find you are planning to sell, that, in itself, could put your company on the skids."

Word getting out can be even more devastating for those in the wine industry than for others. Dick Maher, president, Maher & Associates, Napa, former president of Beringer, Christian Brothers Winery, and Seagram Wine Company, says, "You have to be discreet. As soon as your distributor finds you are going to sell, he's likely to drop your brand. And there goes the value of your company."

Moreover, that offer may not come close to what your business is worth. C. Jay Tveidt, president, VR Jay Tveidt & Associates, Inc., Lynnwood, Wash., tells of attending a conference in which a buyer in a large acquisition company, with three people working with him, told how he had bought 27 privately held companies in the $5-20 million range. Of these, 30% were represented by an intermediary, or business broker (such as Fehere, Maher, and Tveidt) and 70% were not. Of those 70%, in each and every case, the buyer paid less than he was prepared to pay.

The implication is clear. You need professional representation, someone who can help you determine what your business is worth, and can enforce confidentiality and nonpiracy agreements (so the potential buyer does not steal your existing customers or distributors), can help evolve a marketing plan, help with exit strategies and tax advice and serve as a buffer between you and your emotional ties to your business and the buyer.

Let's start at the beginning. "I've been doing this for 20 years, and have sold about 900 small companies, and what I find is common, with rare exceptions, is that people don't plan," Tveidt says. "What is absolute is the life cycle."

In agreement is another broker, William E. Pearsall, president, William E. Pearsall, PS, Bellevue, Wash. "Only three things can happen, you sell your business internally, to family or employees, to outside buyers or it folds." Pearsall suggests starting to work an the transition 18 months to two years early, and Tveidt recommends three years. In any event, start early.

Get An Appraisal

A primary step is getting a professional appraisal so you know what your company is worth. You need an objective standard so you know where you are and where you are going. "I so strongly believe in this that I won't accept a client unless he does this," Tveidt says. He adds, get only a certified appraiser from an organization like the American Society of Appraisers. Tveidt says that though he is qualified to make appraisals, he doesn't do them because of a conflict of interest. However, Tveidt does not work exclusively in the wine industry.

One specialist in the wine industry, Robert M. Nicholson, whose International Wine Associates, Healdsburg, Calif., has initiated more than $650 million in structured transactions and joint ventures in the wine industry, does do the appraisals. He believes that since he is representing the winery, there is no conflict of interest, and moreover, the many characteristics which make a winery different from other businesses require specialized appraisal expertise.

A big reason for starting sales preparations very early is, Tveidt says, "to get all your records in order. Well organized financial statements give a tremendous enhancement to the value of your company."

Here you need an accountant. But you already have an accountant, so that problem is taken care of, right? Not necessarily, Tveidt says. "There are two kinds of accountants," he says. "Most are passive, and historians. They look at what's already happened. But you need a proactive one who can plan for the future." You also want to hire an outside CPA who is certified, and only 1-2% are, Tveidt continues (adding that you should make sure that any broker you consider is also certified).

Tveidt relates one case in which he spotted in five minutes what the owner's accountant apparently never had, namely that the owner had paid $60,000 in unemployment insurance and workers comp that he was not required to pay, and had listed $600,000 in reimbursements for taxation that were not taxable. In another case the company accountant so overvalued the company that had any buyer been foolish enough to purchase it he would lose $100,000 per year in out-of-pocket expenses for 10 years.

You'll also need a lawyer, Tveidt says, but not your own lawyer any more than your own accountant--and not any ordinary lawyer. Most lawyers are trained to create conflict, but if you get a transaction lawyer, Tveidt says, "You'll get someone who gets paid for making deals rather than breaking them." If you've chosen a good business broker, he should be able to provide you with three or more transaction lawyers to choose from. "Personally, I'm always inclined to choose a lawyer who is too busy," Tveidt says. "That means he's less inclined to keep the meter running."