Teachers pour a billion into wine
Pension plan acquire owner of Wine Rack and vintners as sales rise in Ontario
The Ontario Teachers’ Pension Plan’s $1.03-billion acquisition of Constellation Brands Canada, owner of some of the country’s best-known vintners and Wine Rack stores, gives it a foothold in a steadily growing market.
“We see growth opportunities and that is part of our strategy in private capital — we look for strong companies, strong brands and strong growth potential,” said Teachers’ spokesperson Deborah Allan, adding that the wine market is growing overall and Constellation is the market leader in Canada.
Ontarians spent $1.96 billion on wine last year, up 5.4 per cent from 2014, according to the LCBO. Consumption of locally grown wine is also on the rise. Ontario wines accounted for $456 million in wine sales at the LCBO last year — an 8-per-cent year-over-year hike.
Mississauga-based Constellation owns three commercial wineries, five estate wineries and 163 Wine Rack retail locations throughout Ontario. Its domestic brand names include Inniskillin, Jackson-Triggs and Sawmill Creek.
The Wine Rack retail stores — which exclusively stocks Constellation products — give the brands a built-in distribution channel at one of the few alternatives to the provincial government-owned LCBO.
The billion-dollar buyout likely fills a need in Teachers’ portfolio for “pleasure-leisure investment” and producers of alcoholic beverages are a stable long-term investment, said Alan Middleton, a marketing professor at York University’s Schulich School of Business.
“Is the growth there? Yes. Is it spectacular? It definitely wouldn’t be double digits, but probably close to no more than 4 to 5 per cent,” Middleton said.
“But 4 to 5 per cent in an otherwise flat consumer-goods market is not bad.”
Growth will be driven by millennials, who seem to have a particular penchant for wine, he said. That demographic accounted for 42 per cent of all wine consumed last year in the U.S., according to the Wine Market Council.
It’s not the pension plan’s first foray into the booze market. Teachers’ previously invested in Vincor International Inc. — which was acquired by Constellation in 2006 for $1.23 billion.
“We’re familiar with the industry, with the region, with the brands,” Allan said.
Constellation had been considering taking the Canadian division public.
“In April, we announced plans to explore an initial public offering for a portion of our Canadian wine business as part of our strategy to focus on premium, high-margin and highgrowth brands,” said Rob Sands, president and chief executive officer of Constellation Brands.
“We seized the opportunity to sell the entire business in a value-enhancing transaction when it presented itself.”
Constellation Brands has operations in Canada, the U.S., Mexico, New Zealand and Italy. But the pension plan’s ownership is limited to the Canadian operations.
The sell-off of the Canadian arm is part of Constellation’s strategy to focus on its U.S. beer and wine business, where it is busy making acquisitions of its own.
Constellation will continue to own the Black Velvet Whisky brand and its production plant in Lethbridge, Alta.
The sale is subject to regulatory approval and is expected to close by the end of 2016.
Ontario Teachers’ is Canada’s largest single-profession pension plan with some $171 billion in assets.