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New Hambrecht e-IPO Venture Starts With Wine

Lewis Perdue

Ravenswood wines have attracted a cult following of off-beat, Xtreme wine fanatics who crave its gutsy Zinfandels and Cabernets, but the jury's out on whether the IPO it filed late on Feb. 4 will be as robust as the wine.

According to the Sonoma-based winery's Securities and Exchange Commission filing, it registered 1.15 million shares (representing about 25% of the company's common stock) to be offered at $13.50 on the Nasdaq National Market to trade as RVWD. The offering is being handled by OpenIPO the new Internet-based brainchild of long-time investment banker and winery owner Bill Hambrecht and his son Bob.

This makes Ravenswood the first deal for OpenIPO and its rumored-plans to sell new issues directly over the Internet. As the owner of a winery (Belvedere) and vineyards in Sonoma County, it's natural that Bill Hambrecht would look at a winery for his new venture's first offering.

Information is scarce because the Hambrechts are trying to carefully orchestrate the launch of their company and their Web sites at the same time they're handling the Ravenswood offering. But despite a blizzard of embargo agreements signed by all the media whose stories you'll be reading on Monday -- D&D did not sign an embargo agreement -- we have talked with a number of potential investors and institutions who have spoken with OpenIPO personnel.

These sources say that OpenIPO is considering a Dutch Auction type system similar to that in the bond market. In addition, the two Hambrechts have expressed their intention of bringing with them the Hambrecht & Quist tradition of strong research. They hope to offer candid financial and market analysis -- calling it a departure from the sell-side love notes that so often characterize brokerage firm research today.

But as important as research may be, the crucial test of OpenIPO's staying power will be what investment bankers euphemestically call "aftermarket support" -- the sum of the efforts that go into keeping a newborn stock aloft during the critical first weeks of its life. And on that score, why don't we take a look at Bill Hambrecht's own predecessor firm, Hambrecht & Quist (HQ Quote).

H&Q has been involved in underwritings for Canandaigua Brands (CBRNA Quote), Chalone Wine Group (CHLN Quote), Robert Mondavi (MOND Quote) , Golden State Vintners (VINT Quote) and Beringer Wine Estates (BERW Quote). Both Mondavi and Golden State went into the toilet right after their IPOs, losing more than half their value before starting a long climb back. And Chalone stock has been trading at about $10 for more than 10 years.

Of those five, in fact, only Beringer's stock performed exceptionally well immediately after the IPO, and D&D's sources say that's because its largest stockholder, Texas Pacific Group, has the finesse and resources to help maintain its stock price.

In a statement issued on Saturday, Hambrecht investment banker George Coope said, "Lead managers price deals. H&Q over the past few years has consistently ranked in the top 10 for aftermarket performance of its lead-managed deals, according to CommScan. Over the past 10 years, H&Q was a co-manager for Canandaigua Brands, Robert Mondavi, Beringer Wine Estates Holdings and Golden States Vintners."

Preopening Moves

OpenIPO was mum on everything.

"I really can't talk to you until Monday," Bob Hambrecht told D&D on Friday. "We're obviously trying to launch this [OpenIPO] in a certain way." But regardless of what the major papers report in stories that are carefully managed by the embargo agreements, the success of OpenIPO and its new issues will rest on the Hambrechts' abilities to avoid more post-IPO craters like those left by Mondavi and Golden State Vintners.

Both Hambrechts are well respected for their ability to create novel solutions to existing problems, so if anyone can address this fundamental e-IPO flaw, they will be the men.

Further, if they had to bring another winery public, Ravenswood is a good choice, thanks to its strong brand and cultlike followers of the vineyard's fortissimo reds. Winemaker and co-founder Joel Peterson enjoys a Jerry Garcia-like popularity among aficionados of Zinfandel -- a big whacking, deep red (not pink as many people on the East Coast think) uniquely American wine that is among the fastest-growing varietals in the market.

The company's income statement looks good too. According Ravenswood's financials, both revenues and earnings have grown at a healthy pace since the mid-1990s, hitting $17 million and 63 cents a share in 1998, up from $6.3 million and 16 cents in 1994.

With red wine accounting for 91% of Ravenswood's gross sales, it has been one of the foremost beneficiaries of the boom in red-wine sales which exploded in late 1991 following the CBS 60 Minutes episode on "The French Paradox" -- the now medically proven phenomenon that moderate wine consumers live longer, healthier lives than either abstainers or heavy drinkers.

It's clear that the fiscal health of Ravenswood -- as it is with all wineries -- is inextricably linked to public health perceptions. But what' not clear -- yet -- is whether OpenIPO can make this offering as healthy for investor's wallets as the product is for their hearts.