Carlyle Group snaps up Echo Falls winemaker with eye on China

Carlyle Group, the US private equity firm, has agreed to buy the Australian wine producer behind the Hardys and Echo Falls labels for A$1bn (£547m) as it hopes to capitalise on China’s growing thirst for wine.

Accolade is the biggest wine company by volume in both the Australia and the UK, and the company’s brands also include Banrock Station and Kumala.

Carlyle said it was keen to tap into Accolade’s growth opportunities in Asia. “This is a company with great brands and strong market positions, with multiple growth opportunities, particularly in Asian markets,” Carlyle said.

The sale of Accolade by its owners, the Australian private equity firm Champ, comes at a time of rapid growth in demand for wine by China’s swelling middle classes.

Sales of Australian wines to China have been bolstered by a free-trade agreement struck between the two countries that came into force in 2015 in which China cut import tariffs on Australian wine from up to 20% to about 3%.

In 2017, Australian wine exports to mainland China jumped 63% to a record A$848m, putting Australia just behind France in sales of wine to the world’s second largest economy.

Australian winemakers also stand to benefit from Beijing’s decision to raise tariffs on US wine imports in retaliation to higher import tariffs imposed by Donald Trump on a range of Chinese products.

China is the biggest export market for Australian wine, ahead of the US and the UK.

Accolade does not publish a breakdown of its exports to China but the chief executive, John Haddock, told Reuters the company expected to increase them by 80% in 2018, albeit from a small base. “That’s a growth that will be around for many years to come,” he said.

Carlyle is making a big bet on Accolade’s potential, having agreed to pay triple the A$290m Champ paid for an 80% stake in the company in 2011. Constellation Brands, a beer, wine and spirits company, is also selling its 20% stake to Carlyle.

Last year Champ abandoned plans to publicly list Accolade, citing Britain’s decision to leave the European Union as one of the reasons behind the decision.

“There’s no doubt that the United Kingdom is a changing landscape and we are adjusting to that,” Haddock said at the time. “The fall in the pound makes it much harder for exporters selling into the UK, who must sacrifice margins to stay competitive on the shelves of supermarket retailers.”

Accolade has a bottling facility in Bristol, where more than 500 people are employed and more than 600,000 bottles are filled every day. It is the largest wine warehouse and distribution centre in Europe, according to the company.