MGG Investment Group hired Peter Ekman as CEO of Spring Mountain Vineyard. (Photo: Santiago Mejia/S.F. Chronicle)San Francisco Chronicle | 17 May 2025

By Esther Mobley

A form of investment once rare among California wineries is quietly reshaping the industry.

Private equity firms — notorious for buying up private companies, often with the goal of selling them quickly — have lately accelerated their investments in California wineries, targeting famous Napa Valley estates. The Duckhorn Portfolio and Far Niente Wine Estates have had private equity ownership for several years. Newly backed wineries include Spring Mountain Vineyard and Silver Oak Cellars.  

“There’s private equity in I’m going to guess around 10 quite substantial wineries,” said Jeff O’Neill, a wine and liquor company CEO who has previously taken private equity funding. It flows through “wineries selling everything from 200,000 cases to 10 million cases,” he said. 

The growing prevalence is controversial. There are the standard critiques of private equity: that it guts companies’ staff, does a poor job of operating and disproportionately leads to bankruptcy. But the wine industry’s  skeptics also argue that private equity’s typical timeline is at odds with the nature of this business, which is slow to deliver returns. To those who prize family ownership, these firms can look like vultures, squeezing any possible profit out of multigenerational businesses in a short-term play.

“It doesn’t matter the type of investor,” said Alex Ryan, the former CEO of Duckhorn. “If you’ve got a 36-month timer on it, you’ll be a terrible winery investor.”

Nevertheless, the wine industry — and Duckhorn in particular — has proved enormously lucrative for some private equity funds. “On the surface, the impression is that private equity should not be compatible with the wine business,” said Robert Nicholson, principal of International Wine Associates, a mergers-and-acquisitions adviser. But the phenomenal success stories of a select few have all but ensured that it won’t go away anytime soon. “It attracts attention,” said Nicholson. “There are lots of private equity funds looking at the business.”

A banner performance

Private equity hopes for big returns. A firm raises capital from outside investors, then invests that fund in a company and tries to grow the company’s value. It usually aims to exit — selling the company or going public, thereby paying back its own investors — in five to seven years, though the term could be longer or shorter.

O’Neill was an early adopter of private equity investment in wine. In 1985, his small family business had just gone bankrupt and he wanted to start a new one, Golden State Vintners, but he needed capital. Private equity firm Ardshiel Inc. was his lifeline. When Ardshiel sold to another private equity fund eight years later, it made 10 times its initial investment, O’Neill said. Golden State Vintners eventually went public, then sold to the Wine Group, the second largest wine company in the country.

The modern era of private equity in wine really began in 2007 when San Francisco’s GI Partners bought Duckhorn from its founding family. The price was around $280 million, according to a source with knowledge of the deal. In 2016, GI flipped Duckhorn for a reported sum of over $600 million to another San Francisco private equity firm, TSG Consumer Partners. Five years later, TSG took Duckhorn public.

“This is a flagship banner fabulous performance,” said Nicholson. “I would say that’s probably the best example in the California wine business of a successful private equity investment.”

Duckhorn grew tremendously during this period. In the TSG years, it became an acquisition powerhouse, buying the famed wineries Calera, Sonoma-Cutrer and Kosta Browne (which Duckhorn scooped up from another private equity fund, J.W. Childs.) “It could have been a very different business today if it had been absorbed by a wine industry giant” like Constellation, said Nicholson. 

Ryan, the CEO until 2023, attributes this success to “the teams that were running the wineries,” but also to “time and place”: GI and TSG happened to come in during a period when the wine industry overall was still growing.

Butterfly Equity, which bought Duckhorn in October for $1.95 billion, delisting it from the stock market, is not benefiting from the same market conditions. Last week, Butterfly revealed that it would be discontinuing some of the Duckhorn Portfolio’s brands and consolidating into fewer facilities — a shake-up that might seem to suggest it’s in trouble.

But Nicholson said that isn’t necessarily the case. “They’re probably just streamlining things,” he said. Cutting costs, restructuring, finding efficiencies: These are classic private equity moves.

The right private equity firm

A few months before it exited Duckhorn in 2016, GI Partners acquired a majority share in another Napa Valley winery, Far Niente Wine Estates. Proprietor Beth Nickel, who co-founded the winery with her late husband in 1979, said that GI’s infusion of capital has allowed Far Niente to hire the sought-after (and expensive) winemaking consultant Thomas Rivers Brown; to acquire Provenance Vineyards and transform it into a home for their Bella Union label; and “to modernize much of our technology.” Nine years later, GI has yet to exit — a relatively long tenure.

“The right private equity firm,” said Rob McMillan, executive vice president of Silicon Valley Bank’s wine division, “brings business acumen picked up elsewhere that can make the whole business better.” 

Silver Oak Cellars has not spoken publicly about its ownership, but the website of the private equity firm Patricof Co., which raises its funds primarily from professional athletes, suggests that it invested in Silver Oak in early 2023. In February, Silver Oak abruptly closed two tasting rooms for its Twomey brand. Two months later, David Duncan, the son of Silver Oak’s co-founder, ceded his longtime role as CEO to Jared Fix, whose resume includes short stints at Toms, Allbirds and Juul.

One of the most recent private equity deals in Napa Valley involves Spring Mountain Vineyard, a historic property that was the setting for the 1980s soap opera “Falcon Crest,” and its circumstances were unusual. Spring Mountain’s previous owner had defaulted on a $185 million loan that the private equity firm MGG Investment Group issued to him, and MGG acquired the winery for a $42 million credit bid in a bankruptcy auction. Given the winery’s substantial debt and the fact that MGG is now spending around $100 million to rehabilitate the property, it may take many years to recoup the investment.

“We’ll be here at least 5 more years,” Spring Mountain CEO Peter Ekman told the Chronicle in April. The grapevines, just replanted, won’t yield saleable wine for a few more years. Before MGG can sell the winery, “they still have to prove the wines.”

A test of patience

Meanwhile, two California wineries recently shed their private equity backing. Sycamore Partners Management in 2021 paid $1.2 billion for Washington’s Ste. Michelle Wine Estates, whose portfolio included Sonoma’s Patz & Hall and Napa’s Stag’s Leap Wine Cellars. In 2023, Sycamore sold Stag’s Leap to Italy’s Antinori family, which had been a part owner since 2007; and last year, co-founder James Hall bought back Patz & Hall himself.

“There have been examples of successes and failures,” said Silicon Valley Bank’s McMillan. “We’ve seen examples of wineries going public and selling off important assets to meet investor expectations.”

Even the savviest investors won’t be immune from the ills of today’s wine market. “The ability to sell a brand is entirely dependent on the market conditions, not the performance of the brand,” said Andrew Nelson, president of WarRoom Cellars, which has acquired nine California wine brands since 2018. “When the market’s hot and frothy, brands are selling at high multiples of their annual contribution. When those buyers go away, they’re worth nothing.”

They key to success, McMillan suggested, might be the willingness to wait. Private equity firms “are a welcome source of capital if they are patient investors and come with long-term investment horizons,” he said. But patience doesn’t always come in five- to seven-year increments.

The return on the investment is one question. What happens to the winery after the exit is another. When wineries are traded like commodities, especially high-end wineries, they may lose some of their distinctiveness in the eyes of their customers. The departures of the people that made the winery an attractive investment in the first place — the founders, winemakers, viticulturists, its institutional knowledge holders — will change the business fundamentally. 

Although O’Neill credits private equity with helping him start Golden State Vintners in the ’80s, he was grateful to be able to launch his next venture, O’Neill Vintners & Distillers, with his own personal capital. “If you can do without private equity, a large private company is great,” he said. He’s since grown it to become the country’s 18th largest wine company.