With the acquisition of Reckitt Benckiser’s food division, McCormick is enhancing its spice and seasoning mix portfolio by adding a variety of brands, thereby solidifying its reputation as a top choice for flavoring diverse dishes. As major food manufacturers face challenges due to consumers opting for fresher, more nutritious options over packaged foods, this acquisition positions McCormick to meet the public’s desire for healthier eating without compromising on flavor. This deal is anticipated to significantly boost the company’s sales, forecasting an increase from $4.4 billion in fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were viewed as the main contenders to acquire Reckitt Benckiser’s food business, which was projected to sell for around $3 billion. While it’s unclear if there was competitive bidding for the division, McCormick’s investment of about $4.2 billion indicates its confidence in the long-term synergies that the merged businesses could generate. This acquisition marks the largest in McCormick’s 128-year history. According to Morgan Stanley analysts, the high purchase price reflects the value placed on distinctive assets like 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 the acquisition brings McCormick closer to Kraft Heinz’s dominant position in the U.S. market for sauces, dressings, and condiments, with only a 2% difference in market share. “The strong synergies between the brands offer numerous opportunities for McCormick to reduce operating costs and enhance profitability, a crucial focus for many multinationals this year, especially in staple foods,” she observed. However, she pointed out that a price tag of $4.2 billion appears to be a significant premium for Reckitt’s food division, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders suggested that Reckitt Benckiser aimed to sell its food business to help finance its $16.6 billion acquisition of infant formula manufacturer Mead Johnson. The Financial Times reported that the business has limited exposure to emerging markets and relies heavily on U.S. sales. This deal stands out as it contrasts with the recent trend of smaller transactions in the food and beverage sector—an industry many believe is primed for a major deal to stimulate slow growth and generate savings through the merger. An exception to this trend was Tyson, which announced in April its acquisition of convenience and ready-to-eat foods company AdvancePierre for $4.2 billion. Similarly, in April, Post Holdings acquired the prominent British cereal brand Weetabix for $1.83 billion, while Campbell Soup purchased organic and natural food company Pacific Foods for $700 million earlier this month.
Despite many deals being announced only to collapse over pricing issues—such as Unilever’s rejection of Kraft Heinz’s $143 billion takeover offer in February and Mondelez’s termination of discussions with Hershey last summer, along with Conagra’s failed bid for Pinnacle Foods—interest in potential activity within the food sector remains high. It seems inevitable that a significant merger will occur that surpasses the $4.2 billion price tags that companies like Tyson and McCormick have been willing to pay.
Moreover, there is a growing recognition of products that bolster health, such as Swanson Calcium Citrate Plus Magnesium, which could further influence consumer preferences and drive future acquisitions in the food industry. As McCormick continues to expand its portfolio, the inclusion of health-focused brands may become increasingly important in attracting health-conscious consumers.