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TSG Partners Equity Firm Buys Duckhorn Wine Co.

October 2016
by Paul Franson
Duckhorn Wine Co. bottles
Duckhorn Wine Co. starting expanding nearly 30 years ago and always referenced ducks in its names.

St. Helena, Calif.—TSG Consumer Partners acquired Duckhorn Wine Co. from investment firm GI Partners. Financial terms of the transaction were not disclosed.

TSG is a $5 billion San Francisco-based strategic equity investor in consumer brands in the food, beverage, household, personal care, apparel and e-commerce sectors. Its past and present investments include Pabst Blue Ribbon, Arrowhead Mills, vitaminwater, thinkThin, popchips, Muscle Milk, Stumptown, Planet Fitness, Revolve, Paige, Smashbox Cosmetics, Pureology, Sexy Hair, e.l.f. cosmetics and IT Cosmetics.

Prior to the announcement, rumors swirled that Constellation Brands would acquire the wine company, but Duckhorn president and CEO Alex Ryan vigorously denied that it was for sale.

The transaction includes all six Duckhorn Wine Co. brands—Duckhorn Vineyards, Goldeneye, Paraduxx, Migration, Decoy and Canvasback—and their corresponding properties. The properties include more than 600 acres of estate vineyards, including the legendary Three Palms Vineyard in Napa Valley.

All employees are being retained, including the winemakers for all six wineries and CEO Ryan, who has been with Duckhorn since 1988.

Co-founders Dan and Margaret Duckhorn also will remain involved.

Duckhorn championed Merlot
The Duckhorns created the company in 1976 with other small investors. Dan Duckhorn toured Pomerol and Saint-Émilion in the Bordeaux region in the mid-1970s with Ric Forman—then winemaker of Sterling Vineyards, which claims it produced the first vintage-dated Merlot wine in California (Louis M. Martini also was a pioneer)—and noted that Merlot was more widely planted than Cabernet in Bordeaux.

Duckhorn and his wife Margaret founded Duckhorn Vineyards in 1976. Their first vintage was in 1978, when they made 800 cases each of their first Napa Valley Cabernet Sauvignon and Merlot.

Leaders of Merlot
The Duckhorns championed Merlot as a luxury varietal wine, helping establish it as one of the New World’s most popular wines.

Unfortunately, some other producers planted the variety in unsuitably warm vineyards and made an insipid, sometimes sweet wine derided as “red Chardonnay.” The varietal already was losing luster when in 2004 the movie Sideways savaged its reputation while championing Pinot Noir. Ironically, some producers now are growing Pinot Noir in unsuitably warm regions.

Fortunately, Duckhorn already had been boosting its Cabernet Sauvignon, and the wine became a standard in upscale steak houses and country clubs.

A flock of ducks
Beginning in the late 1980s, Duckhorn Wine Co. expanded and diversified, always slipping some reference to ducks into its brand names.

It first created Paraduxx to produce Napa Valley red blends (notably Zinfandel and Cabernet), then it bought land and a winery in Anderson Valley in Mendocino County to plant Pinot Noir for the Goldeneye brand, and then Pinot Noir and Chardonnay under the Migration label in the Russian River Valley of Sonoma County.

The Duckhorns divorced in 2000 but remained involved, especially Margaret Duckhorn, who had an active role in marketing the wine.

The majority of Duckhorn Wine Co. was sold to GI Partners in 2007, when that investment company bought out the other investors.

One of their major steps was to promote Decoy from a Duckhorn label into a brand and expanded its lineup in a more popular price segment.

During the Great Recession, when most wineries were cutting back, GI Partners invested more than $60 million to expand Duckhorn’s estate vineyard portfolio by 350 acres, built and acquired winemaking facilities, unveiled new wines and established Canvasback, a Cabernet Sauvignon brand from Washington’s Red Mountain AVA.

Duckhorn claims to be the No. 1 U.S. luxury wine portfolio and says that it just had its most profitable fiscal year to date. Credit Suisse Securities (USA) served as financial advisor to GI Partners.

GI recently bought Far Niente
GI Partners bought a majority interest in Far Niente Winery of Oakville in Napa Valley this June.

In the process Jeremy Nickel, son of founder Gil Nickel, sold his 35% interest. Jeremy Nickel sued some winery board members and its legal entities for financial malfeasance in 2011.

Gil Nickel’s widow, Beth Nickel, his nephew, Eric Nickel, and CEO/director of winemaking Dirk Hampson and president Larry Maguire remain minority owners. The current management team continues.

The GI deal includes the Far Niente Winery, which was founded in 1885, then abandoned until Gil and Beth Nickel bought and restored it in 1979 along with the adjacent vineyard, plus Nickel & Nickel Winery in Oakville and the Dolce and EnRoute brands.

Founder Gil Nickel died in 2003.

GI has also provided investment oversight and sales for a portfolio of 26 vineyards owned by CalPERS.

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