Matthew Smith Reporter

Matthew Smith has been a business and financial journalist for more than a decade. He previously worked with the Financial Times Group, reporting from New York on company buyouts and refinancing in the wake of the Global Financial Crisis. He started his career reporting on the funds management industry in Sydney.

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Keeping the fruits of their labour

Published 15 November 2012 04:45, Updated 30 November 2012 04:55

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Grant Burge likes to remind his youngest son that when he was his age, he had already bought his first winery.

Burge was 27-years-old when he teamed up with a mate to buy Krondorf winery in the Barossa Valley. Within two years, the pair had taken the company public and a few years later, they were the subject of a hostile takeover by Mildara Blass. Foster’s Group subsequently acquired that company, where Burge stayed on for a couple of years but he ultimately went out on his own again, repurchasing the vineyards he had first bought all of those years ago to start his own family wine business.

The time Burge has spent building, listing and selling businesses, taught him a lot of things but most of all it has reinforced that publicly listing the family business is not a path he ever intends to go down again.

“Yes, I made a lot of money out of it but I don’t want to put it in the public sphere only to be taken over again. I don’t want to be responsible for that, I want control, I want to run the business,” he says.

The business comprises of $60 million of vineyards, $40 million of equipment and $50 million in stock. The hard assets are owned by a family trust and the business itself has the farm gate wine business and a separate distribution entity with a professional board with outside directors.

The end game for Grant Burge wines now is to pass the family business on to his three children.

Toby, the oldest son, is the company’s vineyard manager; Amelia, the middle daughter, has studied commerce and wine marketing and is gaining experience outside the family business; Trent, the youngest, is working in the vineyards.

All the Burge kids are on the board of directors by invitation.

“I want them to see the good and the bad, get involved in running the business,” he says.

A big chunk of the middle market generally is made up of family owned business.

According to the Family Business Association, 70 per cent of all corporations are family businesses and they employ about 50 per cent of the workforce.

But it’s hard to know exactly what proportion of the middle market family businesses represent and the influence they have because neither the Australian Bureau of Statistics nor the Australian Taxation Office breaks out the segment as a distinct category.

Queensland’s Labor Senator Sue Boyce believes family businesses hold the key to driving the growth of the economy and needs more government attention.

The Parliamentary Corporations and Financial Services Committee recently set up a committee to undertake an enquiry of the segment on which Boyce is the deputy chair.

According to Boyce, anecdotal evidence suggests that family businesses have bounced back from the global financial crisis quicker than other businesses and have generally shown greater resilience than other business structures through the global and local economic cyclical ups and downs. Underpinning the inquiry is the question of whether the ABS should begin to collect data specifically on family businesses and whether there is value in treating family businesses as a category unto itself.

Boyce says the goal of the committee is to ultimately create a ministerial portfolio for family business so it can have standardised treatment from a tax, research and law perspective.

Like most family businesses, succession is the biggest issue for Burge.

“We’re about to embark on a family heart-to-heat to figure out what everyone wants,” Burge says of his plans to get his children more involved in the running of the business.

Funding is the other main issue Burge faces. The company’s property assets are held by a family trust, so traditional funding is scarce because the banks are reluctant to lend based on cash flow and stock.

Operating a winery is a capital intensive business, says Burge. For every dollar in sales he says the business needs $1.60 to fund production and storage of the wine. In addition to using cash flow debtor financing for the operations of the winery, he is building a handy cash flow from the distribution business to fund additional growth.

When Australian winemakers started going overseas en masse to exploit the growing international demand for Australian wines, Burge says he focused on the domestic market and began to grow a strong distribution network in Australia.

More recently, Burge has recruited top sales people from Coca-Cola and winemaker Penfolds and has built a sales force of 24 people selling Grant Burge and a handful of wines from boutique players in Australia and New Zealand.

Burge says he could envisage spinning off the distribution business in about four to five years, with a potential listing in the public markets.

But as far as the 2400 hectares of vineyards he owns in the Barossa Valley – everything he holds near and dear to his heart – will be kept within the family.

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