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Exclusive: Ste. Michelle Wine Estates Sold To Private Equity Firm Sycamore Partners For $1.2 Billion

July 9, 2021

One of the largest winemakers in the U.S. is set to change hands. Ste. Michelle Wine Estates, a driving force behind the development of the Washington wine category over the past few decades, is being sold by corporate parent Altria to New York-based private equity firm Sycamore Partners in a deal worth $1.2 billion. The all-cash transaction is expected to close in the second half of the year, subject to obtaining financing and other customary closing conditions.

According to Impact Databank, Ste. Michelle ranked as the eighth-largest wine marketer in the U.S. last year at 7.3 million 9-liter cases, led by the Chateau Ste. Michelle and 14 Hands brands, which account for about 3.1 million cases and 1.3 million cases respectively.

David Dearie, the veteran wine executive who became Ste. Michelle’s CEO last fall, told SND that he and his team are slated to stay on post-acquisition. “They bought into the vision and the strategic plan that we presented,” he said in an interview. “I think we’re the best folks to execute that plan, and so do our partners. We’ll put in the investment required to maximize our potential.”

Sycamore, which specializes in retail and consumer investments, has current holdings in brands like Staples, Express, Loft/Ann Taylor, Commerce Hub, and Lane Bryant. The firm has approximately $10 billion in aggregate committed capital.

“Any private equity group that buys into the branded alcohol business is making a big commitment, because it takes them out of the retail sector from a three-tier point of view,” Dearie noted. “That in itself is a statement, and we’re excited about partnering with them because our ambitions are aligned.”

Altria, whose holdings also include Philip Morris USA and stakes in AB InBev and cannabis company Cronos, acquired Ste. Michelle as part of its purchase of U.S. Smokeless Tobacco Company in 2008. Altria CEO Billy Gifford said the divestiture will improve value creation for shareholders and allow the company to sharpen focus on its core tobacco business.

Ste. Michelle has seen volume decline by more than 1.2 million cases over the past four years, according to Impact Databank. Under pressure from the pandemic, sales were down 11% to $614 million last year, with operating income slipping 30% to $51 million. However, both sales and profits returned to growth in the first quarter of this year, and Dearie sees brighter skies ahead.

“We’ve launched new packaging behind 14 Hands and we’re seeing double-digit depletion growth in the brand over the last couple months,” he said. “We’ve also got new packaging going out on our flagship brand Chateau Ste. Michelle that’s hitting shelves now. We’ll put a lot of marketing investment in the second half of the year behind both those brands.”

Newer products like Liquid Light Sauvignon Blanc are also contributing to growth this year, as are higher-end brands like Napa Valley’s Stag’s Leap Wine Cellars. “We’re seeing the on-premise returning and the direct-to-consumer business really picking up on our fine wines,” said Dearie.

“Our partners see a significant opportunity for growth, and so do we,” he summed up. “I packed up and left Australia to come here in the middle of Covid because I saw the potential, and now we’ve got a partner who will help us realize that.”—Daniel Marsteller

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