The Treasury Wine Estates Ltd (ASX: TWE) share price is in the green this morning after the company announced it has agreed to acquire Napa Valley's Frank Family Vineyards.
The acquisition will cost Treasury Wine around $432 million. It's expected to fill a luxury chardonnay-sized hole in Treasury Americas' portfolio.
At the time of writing, the Treasury Wine share price is $11.33, 0.71% higher than its previous close.
Let's take a closer look at Treasury Wine's latest acquisition.
Image source: Getty Images
About Frank Family Vineyards
Frank Family Vineyards has been around for nearly 30 years. In that time, the business has built an award-winning portfolio led by chardonnay and backed by a range of cabernet sauvignons, pinot noirs, and sparkling wines.
Frank Family Vineyards owns two vineyards, a winery, a tasting room, and a direct-to-consumer wine club model. The business's wines' price points range from US$38 to US$225 per bottle.
In financial year 2021, Frank Family Vineyards brought in around $74.5 million of net sales revenue. It also saw $28.2 million of earnings before interest, tax, material items and self-generating and regenerating assets (EBITS).
On the acquisition, Frank Family Vineyard founder Reich Frank commented:
[Fellow founder] Leslie and I look forward to continuing to be a part of the next chapter of Frank Family Vineyards, a business we have spent nearly three decades cultivating into a beloved luxury wine brand… We, along with our team, are excited to remain actively involved with Frank Family, while also taking on new leadership roles with Treasury Americas.
Treasury Wine share price up on acquisition news
The Treasury Wine share price is gaining after the company announced the latest step in Treasury Americas' growth strategy.
The purchase reflects the company's plan to divest low-margin US assets, replacing them with sustainable, high-margin, luxury businesses.
Treasury Wine CEO Tim Ford, commented on the acquisition:
This is a rare opportunity to acquire a luxury brand and portfolio of wines that consumers enjoy and connect with… Together with [Leslie and Rich], we are excited by the future potential that will be unlocked by the strengths of the Treasury Americas luxury wine platforms.
Treasury Wine will be paying for Frank Family Vineyards with a mix of cash and debt.
Some of the cash used to acquire Frank Family Vineyards will come from the company's divestment strategy. The divestment of Treasury Wine's non-priority US brands has now brought proceeds of around $300 million.
The $432 million price tag represents an earnings before interest, tax, depreciation, amortisation, material items and self-generating and regenerating assets acquisition multiple of 13.2x. The company states that's favourable to both current Treasury Wine and historic luxury wine transaction multiples.
Treasury Wine also expects Frank Family Vineyards will deliver EBITS growth from financial year 2023.
Additionally, Frank Family Vineyards is expected to bring US$5 million in run rate cost synergies for Treasury Wine from financial year 2024.
Frank Family Vineyards will make up part of Treasury Wine's portfolio come December.
The Treasury Wine share price is currently nearly 3% lower than it was this time last month. However, it has gained around 21% since the start of 2021.
