Saturday, April 2, 2016

Harry McWatters cashes out on Black Sage Road

Photo: Encore Vineyards principal Harry McWatters

In a deal that has stunned the British Columbia wine industry, Harry McWatters and his partners have sold the storied Sundial Vineyard and a partially built winery on Black Sage Road.

Sundial is the front half of a 110-acre property better known as Black Sage Vineyards. Planted in 1993, this was at the time the single largest block of Bordeaux red varieties in Canada. This was the block that established the ability of the Black Sage Bench to produce premium wines.

The new owner of Sundial, Bai Family Estates, plans to complete the 25,000-square-foot winery already under construction there. Superstar California winemaker Anne Vawter will make the wine. She has already been the consulting winemaker for One Faith Vineyards, making wine since the 2012 vintage with grapes from Sundial.

One Faith, owned by Vancouver businessman Bill Lui (right), released its first vintage late in 2014 in a three-box case priced at $495 a box.

The name of the owner of Bai Family Estates was not disclosed in the April 1 announcement from Encore Vineyards, the Harry McWatters company. However, the owner is believed to be a mining executive from China. Both he and Lui have been guided into the British Columbia wine business by wine educator and consultant James Cluer MW.

Anne Vawter grew up near Walla Walla, wine country in Washington State. After considering a career in dentistry, she got a degree in viticulture and enology at the University of California, quickly emerging an important consulting winemaker. Most of her clients (such as Ziata Wines, Oakville Ranch Vineyards and Teaderman Vineyards) are in Napa. Her husband, Cameron Vawter, is the winemaker at Dana Estates at Rutherford.

Anne has her own label, Red Mare Wines, a name inspired by her equestrian interests. She has managed Blossom Creek Ranch, a horse farm in Calistoga.

“I think it is a really fascinating place to make wine,” she said of the Okanagan (I interviewed her during the One Faith launch). “It is similar in certain ways to Washington State, but individual as well. The soil where we are making our wine on the Black Sage Bench area is very uniform sand and very deep sand. That is distinctive and unique. Most places are not going to have that soil structure. That is fascinating for me.”

“I am also drawn to higher latitudes,” she continued. “There is something special that happens, especially with the blending varieties – Merlot, Cabernet Franc, Petit Verdot and Malbec. It is interesting when you have that shorter season, longer days and sometimes higher temperatures … a combination of those things sometimes produces wines that are a little more interesting. It produces rich Merlots, strong, mouth-filling, tannic Merlots. I think somehow it has to do with the shorter season and the longer days.”

McWatters is not out of the wine business, however. Encore Vineyards produces wines under the labels Time, McWatters Collection and Evolve. McWatters plans to move the Encore production to another location in the Okanagan, either building a new winery or modifying an existing one. McWatters, who has been negotiation the sale of Sundial for several months, has identified eight potential new locations for Encore.

He is also negotiating new source of grape supply for Encore. The news release says: “Due to ever-changing consumer demands, Encore Vineyards now has the flexibility to contract and purchase fruit to meet the needs of the wine-loving public. It is noted that Encore has already been in the process of securing fruit from multiple sources. Encore has already negotiated access to select fruit at its former vineyard in Oliver.”

Lawrence Buhler (left), the winemaker Encore hired last year, remains part of the McWatters team.

Encore’s news releases addresses some of the “frequently-asked” questions about the transaction, beginning with the value.

“Encore is bound by a confidentiality agreement and is unable to reveal the purchase price,” the news release says.

“We got a substantial premium over the appraised value of the land,” McWatters said in an interview.

In the Encore offering memorandum in June, 2014, when the group set out to raise $5 million from investors, it was disclosed that Encore had paid about $10.1 million to purchase the assets – primarily the vineyard – from McWatters.

Industry observers would be surprised if the new buyer paid less than five times the value of those assets.

McWatters, the founder of Sumac Ridge Estate Winery, began looking for vineyard property on Black Sage Road about 1990, two years after most of the vineyards had been pulled out in the transition from mediocre hybrid grape varieties. At the time, the previous owners were asking $2,250. Harry was not successful with a counter offer of $1,800 an acre. Vineyard land prices began to recover. When McWatters and his partner finally bought the 110 acres in 1992, they paid about $3,650 an acre.

It may have seemed outrageous at the time but the Encore financing implies the value of the vineyard was approaching $150,000 an acre in 2014.

The original transaction left McWatters with the ownership of about 60 acres while the Sumac Ridge winery owned the rest. Constellation Brands, which now owns Sumac Ridge, kept the Black Sage Vineyards name when McWatters retired several years ago. He was required to name his parcel Sundial and that is the vineyard which has just been sold.

“This is about business,” McWatters says. “It isn’t about being emotionally attached to the vineyard.”

In the news release, Encore says: “The sale of this vineyard advances our strategy by unlocking the land value in our portfolio. … Encore will be debt-free, and own all equipment and inventory.”

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