7 Steps to Effective Wine Estate Due Diligence 

Once you have a working estimate of the value of a wine estate based on common asset values in the area, you are in a position to make a conditional offer and begin negotiating. If you and the seller agree on a sale price, you will sign a compromise, binding both of you to the transaction provided the due diligence confirms the assets to be in the condition on which you based your estimate. The compromise gives you time to carry out a deep dive due diligence to make sure you are buying what you think you are buying.

Your Due Diligence must include the following steps:

1 - Legal landscape

Legal due diligence on a wine estate establishes basic facts about the entity including:

  • Date the business was established;

  • Legal form and ownership structure;

  • Location of both operational and legal headquarters.

In addition, it should reveal:

  • Pending legal actions to which the estate is party;

  • Liens on the property;

  • Public debts in the form of unpaid taxes (corporate, payroll, VAT etc.);

  • Private debts to suppliers;

  • Constraints in the form of promises tied to past government subsidies received.

 

Furthermore, contracts to lease or lease out land and/or buildings, and personnel contracts, whether to employees or agents should be reviewed. Finally, relationships with the principal associations of the sector and region should be noted.

2 - Consistence, conformity and condition of the means of production
  • Land

    • Total area and boundaries;

    • Area dedicated to each crop (vines, olive trees, forest, arable land, fallow, etc.).

  • Vineyards

    • Soil analysis;

    • Water availability and drainage;

    • Planting and training scheme;

    • Clones and rootstock;

    • Condition of soil, vines, vineyard infrastructure (trellises, irrigation system, fencing);

    • Registration in the appropriate appellations and conformity with the production rules thereof;

    • Inventory of any available planting rights;

    • Theoretical production capacity as well as historical production quantities.

  • Machinery

    • Condition, conformity to environmental and safety norms;

    • Efficiency, including maintenance costs;

    • Book and market values.

  • Winemaking facilities

    • Inventory (tanks--number and capacity--and all other machinery);

    • Condition and efficiency, including annual maintenance costs;

    • Book and market values;

    • Production processes in place;

    • Historical production quantities;

    • Sanitary, HCCP and worker safety authorizations;

    • Quality certificates.

3 - Buildings assessment
  • Conformity to local building codes;

  • Age, materials, condition;

  • Plumbing, heating and electric systems;

  • Cost of necessary renovations and expansion possibilities;

  • Seismic risk;

  • Availability of government subsidies for building work.

4 - Value of inventories
  • Wine

  • The amount of all wines, bottled and bulk, present in the cellar will be compared to the quantities listed in the winery’s registries;

  • Estimate of market value based on sensorial analysis, production costs and historical sales prices.

  • Packaging;

  • Oenological products;

  • Fertilizers and vineyard treatments;

  • Fuels;

  • Other items in warehouse.

5 - Commercial Situation
  • Time-to-market;

  • Presence in global markets;

  • List and net prices;

  • Client list;

  • Historical sales;

  • Accounts payable (amount and age);

  • Publicity/reviews/awards;

  • Digital presence;

  • Trademarks.

6 - Personnel
  • Analysis of personnel in terms of age, skills and experience, past performance, contract type and annual cost;

  • Training programs in place;

  • Active consulting agreements.

7 - Estimates of revenues and operational costs

​​​To estimate of earnings potential of a wine estate, see my Wine Estate Income Model [link].