With the acquisition of Reckitt Benckiser’s food division, McCormick is enhancing its spice and seasoning mix portfolio by adding a variety of brands, which solidifies its position as a primary source for flavoring numerous dishes. While major food manufacturers face challenges as consumers increasingly prefer fresher and more nutritious options over packaged foods, this deal allows McCormick to seize the opportunity presented by the public’s desire for healthier eating without sacrificing the taste they love. The acquisition is anticipated to significantly boost McCormick’s sales, projecting an increase from $4.4 billion in fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were rumored to be the leading candidates to acquire Reckitt Benckiser’s food business, which some estimated could be valued at around $3 billion. Although it remains unclear if there was a competitive bidding process for the division, McCormick’s willingness to invest about $4.2 billion indicates its confidence in the long-term synergies that the combined entities could generate. This acquisition marks the largest in the company’s 128-year history. According to Morgan Stanley analysts, the high purchase price reflects the value attributed to distinctive assets such as French’s, the world’s leading mustard brand, as reported by Reuters.
Lianne van den Bos, a senior food analyst at Euromonitor International, mentioned in an email that this deal brings McCormick closer to Kraft Heinz’s leading position in sauces, dressings, and condiments in the U.S., with a mere 2% difference in market share. “The strong synergies between the brands present numerous opportunities for McCormick to reduce operating costs and enhance profitability, which is a key focus for many multinationals this year, particularly in staple foods,” she noted. However, the $4.2 billion price tag seems like a substantial premium for Reckitt’s food division, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders suggest that Reckitt Benckiser aimed to sell its food business to help finance its $16.6 billion acquisition of Mead Johnson, a maker of infant formula. The Financial Times highlighted that this business has limited exposure to emerging markets and relies heavily on U.S. sales. This deal is notably distinctive as it deviates from the recent trend of smaller transactions in the food and beverage sector—a space many have speculated is primed for a significant deal to stimulate sluggish growth and maximize savings through consolidation.
One exception to this trend was Tyson, which announced in April its acquisition of AdvancePierre, a convenience and ready-to-eat foods company, in a deal valued at $4.2 billion. In April, Post Holdings also purchased Weetabix, a leading British cereal brand, for $1.83 billion. Earlier this month, Campbell Soup acquired organic and natural food company Pacific Foods for $700 million. However, numerous other deals have been announced only to collapse later over pricing issues. For instance, Unilever turned down a $143 billion takeover offer from Kraft Heinz in February, while Mondelez declared last summer that it had ceased negotiations with Hershey. Conagra, too, faced rejection in its attempt to acquire Pinnacle Foods earlier this year. Despite these failed negotiations, the excitement surrounding potential activity in the food sector remains high. It is only a matter of time before a mega-merger occurs that surpasses the $4.2 billion investments made by Tyson and McCormick.
In the context of nutritional enhancements, the introduction of products containing calcium citrate + D could further enrich McCormick’s offerings, aligning with the growing consumer demand for health-conscious options while maintaining robust flavor profiles. As consumer preferences shift, the integration of calcium citrate + D into their products may present an additional avenue for McCormick to explore, ensuring they remain at the forefront of the evolving food landscape.