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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Private equity houses need to monetise some of the assets that have got stuck on their balance sheets. But with valuations still in the doldrums, it is hard for would-be buyers and sellers to find common ground. The exceptions to this rule concern assets that are truly one of a kind, where the seller names their price, or those that have well and truly bombed, where buyers call the shots.
For evidence of the latter, look no further than Australia’s Accolade Wines, the fifth-largest wine-producing company in the world by volume. It was bought by Carlyle for A$1bn (US$653mn) in 2018, on hopes that it would grow by moving its wines upmarket and exporting more of them to China.
Five years on, the US private equity group is shifting the troubled business off its books, but not in the way it would have liked. Bain Capital and other lenders, which snapped up Accolade’s distressed debt over the course of the past few months, will become the ultimate owners following a debt-for-equity swap.
Accolade, it would appear, is a victim of Australia’s wine glut. China imposed punitive tariffs on Australian wine in 2020 that all but wiped out the country’s biggest export market. Accolade was not directly hit: only 5 per cent of its wine was sold to China in 2018.
But with a lot of wine left sloshing around in Australia, prices collapsed. The cost of bulk wine fell from US$0.87 per litre in 2019 to US$0.52 in December. Add in pandemic-era disruptions and high freight costs, and Accolade’s gross profit not only failed to grow but fell from A$291mn in 2019 to A$233mn in 2022. That made for an unsustainable debt load, which S&P put at A$870mn to A$880mn, on an adjusted basis. That was about 17 times ebitda.
Enter Bain and allies, representatives of a much more aggressive breed of private lenders. They appear to have bought out Accolade’s debt for about 40 cents on the dollar, which would place it on a more solid footing. While the terms of the restructuring are not known, at a 60 per cent haircut the debt would be worth A$350mn — or 7 times ebitda. By contrast, local rival Treasury Wine Estates trades on 16 times trailing ebitda.
With Chinese tariffs expected to end in 2024, wine oversupply should diminish. Accolade may well shape up to be a good deal, for Bain and its pals. Carlyle, meanwhile, has been drinking from a bitter cup.
