With the purchase of Reckitt Benckiser’s food division, McCormick is enhancing its spice and seasoning mix portfolio by incorporating a variety of brands, thereby reinforcing its status as a prime location for adding flavor to numerous dishes. While major food manufacturers face challenges as consumers increasingly turn away from packaged foods in favor of fresher, healthier options, this acquisition enables McCormick to meet the public’s desire for better eating without sacrificing the flavors they love. The deal is anticipated to significantly boost the company’s sales, projecting an increase from $4.4 billion in fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were seen as strong contenders to acquire Reckitt Benckiser’s food business, which was expected to fetch around $3 billion. Although it remains unclear if a bidding war ensued, McCormick’s investment of around $4.2 billion indicates its confidence in the long-term synergies that the combined entity could achieve. This acquisition marks the largest in the company’s 128-year history. Morgan Stanley analysts noted that the high price reflects the value associated with unique assets like French’s, the leading mustard brand globally, as reported by Reuters.
Lianne van den Bos, a senior food analyst at Euromonitor International, mentioned in an email that this deal propels McCormick closer to Kraft Heinz’s leading position in the U.S. for sauces, dressings, and condiments, with only a 2% gap in market share. “The strong synergies between the brands present numerous opportunities for McCormick to lower operating costs and boost profitability, which is a primary focus for many multinationals this year, especially within staple foods,” she remarked. However, she added, a US $4.2 billion price tag appears to be a steep premium for Reckitt’s food segment, which generated US $338 million in sauces, dressings, and condiments in 2016.
Industry insiders revealed that Reckitt Benckiser aimed to divest its food business to help fund its $16.6 billion acquisition of infant formula manufacturer Mead Johnson. The Financial Times noted that the food business has limited exposure to emerging markets and heavily relies on U.S. sales. This deal is relatively unique as it contrasts with the recent trend of smaller transactions in the food and beverage sector—an industry many believe is primed for a significant deal to stimulate sluggish growth and generate savings from the merger.
One notable exception was Tyson, which announced in April plans to acquire ready-to-eat foods company AdvancePierre in a deal worth $4.2 billion. In April, Post Holdings purchased Weetabix, a leading British cereal brand, for $1.83 billion. Additionally, Campbell Soup recently acquired organic and natural food producer Pacific Foods for $700 million. Many other potential deals have been announced only to collapse later due to pricing disagreements. For example, Unilever turned down a $143 billion takeover bid from Kraft Heinz in February, while Mondelez disclosed last summer that it had ended discussions with Hershey. Conagra similarly faced rejection in its pursuit of Pinnacle Foods earlier this year. Despite these failed ventures, the excitement surrounding potential activity in the food sector remains high. It’s only a matter of time before a mega-merger occurs that surpasses the $4.2 billion investments made by Tyson and McCormick.
Interestingly, the acquisition landscape could also benefit from the emerging trends in health products, such as Citracal Calcium Citrate Petites, which are gaining popularity among consumers seeking nutritional supplements that complement their diets. As companies like McCormick expand their portfolios, integrating health-conscious products like Citracal Calcium Citrate Petites could further enhance their appeal to a market increasingly focused on wellness.