It's five o'clock somewhere for the Ontario Teachers' Pension Plan.
Teachers said Monday that it would acquire the Canadian business of Constellation Brands Inc. in a $1.03-billion deal that will give the pension plan control over many of the country's top wine brands – and their vineyards and production facilities. It also marks the pension fund's entry into the highly competitive alcoholic beverage industry.
The transaction includes well-known wineries and production facilities from the Niagara-on-the-Lake region such as Jackson-Triggs and B.C. wineries such as Inniskillin Okanagan and Sumac Ridge as well as more than 160 Wine Rack retail stores spread through Ontario. The deal is expected to close by the end of the year.
Teachers was drawn to the chance to acquire household-name brands that are popular with consumers.
"We always look to find Canadian companies to add to our portfolio – it's hard, there's a lot of capital going after transactions," said Jane Rowe, head of private equity at Teachers. She added that the broader trend of increased Canadian consumption of wine bodes well for the growth of the business.
Teachers will take on the task of convincing Canadians to drink more local wines as Constellation's publicly traded international parent company, which makes and sells a variety of beer, wine and spirits in several markets, said it will focus in on higher-growth brands with higher margins. The deal notably doesn't include Black Velvet Whisky, which is made in Lethbridge, Alta., marking the popularity of brown spirits. Constellation has said that Black Velvet is the second-largest Canadian whisky brand in the United States.
In some ways, these wines are just returning to the Teachers portfolio. The pension fund has been been making private equity investments for 25 years and became an investor in domestic wine producer Vincor International Inc. back in the early 1990s, and later helped take the business public. The Vincor was then acquired by Constellation a decade ago.
"When we knew it was coming back on the market, we thought this would be a really nice asset for the Ontario Teachers to own," Ms. Rowe said.
As recently as the beginning of October, Constellation had been pursuing another initial public offering for the Canadian wine business, saying it needed more capital to develop business opportunities. The wine business includes more than 1,700 acres of Canadian vineyards.
Teachers thinks it can grow the brands further within Canada and add to the business by considering what other types of wine consumers might want. Ms. Rowe suggests that could include sweeter wines for younger consumers or more full-bodied wines for a more mature demographic. The trends toward shopping and consuming local products could be helpful because the business has wineries in British Columbia and Ontario.
Constellation's most recent annual report noted that its non-U.S. business, which includes Mexico, Italy, New Zealand and Canada, reported nearly $588-million (U.S.) in net sales, with Canada being the dominant market. That marked a decline from the same time in 2015 and 2014.
But the overall trend for wine consumption in Canada is positive, with more wine being consumed across the board, and more of it coming from Canadian producers, according to Statistics Canada's five-year data leading into 2015. That fuelled Teachers' desire to acquire Constellation.
"Wine has continued to be a growth product," Ms. Rowe said. "As they say in the business, wine has a growing share of stomach."
As Constellation moves out of Canadian wine, it will now look to Washington and new brands for growth. The company also said Monday that it would buy a portfolio of wines from Washington State, with wild names such as Kung Fu Girl Riesling and Velvet Devil Merlot, which it said had shown "double-digit volume growth over the last three years."