With McCormick’s acquisition of Reckitt Benckiser’s food division, the company is expanding its portfolio of spices and seasonings, reinforcing its status as a premier destination for enhancing the flavor of various dishes. As large food manufacturers face challenges due to consumers opting for fresher, more nutritious options over packaged foods, this acquisition allows McCormick to meet the public’s desire for healthier eating without sacrificing the flavors they love. This deal is anticipated to significantly boost the company’s sales, with projections estimating growth from $4.4 billion in fiscal year 2016 to approximately $5 billion.
Earlier this week, there was speculation that Unilever and Hormel were the leading candidates to acquire Reckitt Benckiser’s food business, which was thought to potentially fetch around $3 billion. While it’s unclear if a bidding war occurred, McCormick’s willingness to invest approximately $4.2 billion indicates its confidence in the long-term synergies that the combined entity could offer. This acquisition marks the largest in McCormick’s 128-year history. Analysts from Morgan Stanley noted that the high price reflects the value attributed to unique brands like French’s, the world’s top mustard brand, according to Reuters.
Lianne van den Bos, a senior food analyst at Euromonitor International, mentioned in an email that this deal positions McCormick closer to Kraft Heinz’s leading role in the U.S. market for sauces, dressings, and condiments, with only a 2% gap in market share. She emphasized, “The strong synergies between the brands offer ample opportunities for McCormick to reduce operating costs and enhance profitability, a major focus for many multinationals this year, particularly in staple foods.” However, she also pointed out that a $4.2 billion price tag represents a considerable premium for Reckitt’s food division, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders indicated that Reckitt Benckiser aimed to sell its food business to help finance its $16.6 billion acquisition of infant formula producer Mead Johnson. The Financial Times reported that this business has limited exposure to emerging markets and relies heavily on the U.S. for its sales.
This deal is relatively unique as it contrasts with the recent trend of smaller transactions in the food and beverage sector—a field many believe is primed for significant mergers to stimulate sluggish growth and achieve cost savings between the merged entities. One notable exception was Tyson, which announced in April its acquisition of convenience and ready-to-eat foods company AdvancePierre for $4.2 billion. In the same month, Post Holdings acquired Weetabix, a leading British cereal brand, for $1.83 billion, while Campbell Soup also purchased organic and natural food company Pacific Foods for $700 million earlier this month.
Despite various deals being announced only to later fall through over pricing disagreements, the excitement surrounding potential activity in the food sector remains high. Unilever turned down a $143 billion takeover bid from Kraft Heinz in February, and Mondelez reported last summer that it had ended talks with Hershey. Conagra also faced rejection in its attempt to acquire Pinnacle Foods earlier this year. Nevertheless, these failed negotiations have not diminished the anticipation for a significant merger in the food industry, which could surpass the $4.2 billion price tags that companies like Tyson and McCormick are willing to pay.
As part of their comprehensive nutritional offerings, McCormick may consider integrating products like Citracal 600 with Vitamin D into their portfolio, appealing to health-conscious consumers and further enhancing their market position.