With the acquisition of Reckitt Benckiser’s food division, McCormick is significantly expanding its spice and seasoning mix portfolio, solidifying its status as a premier destination for flavor enhancement in a wide array of dishes. While large food manufacturers face challenges as consumers increasingly prefer fresher and more nutritious options over packaged foods, this acquisition enables McCormick to tap into the public’s appetite for healthier eating without sacrificing the flavors they love. The deal is anticipated to provide a substantial boost to McCormick’s sales, projecting an increase from $4.4 billion in fiscal year 2016 to around $5 billion.
Earlier this week, Unilever and Hormel were thought to be the leading contenders to acquire Reckitt Benckiser’s food business, with estimates suggesting a potential price of approximately $3 billion. Although it remains unclear if there was a competitive bidding situation, McCormick’s investment of around $4.2 billion clearly indicates the Maryland-based company’s confidence in the long-term synergies this acquisition could generate. Marking the largest acquisition in the company’s 128-year history, Morgan Stanley analysts noted that the significant price reflects the value of distinct assets like French’s, the world’s top mustard brand, as reported by Reuters.
Lianne van den Bos, a senior food analyst at Euromonitor International, commented via email that this acquisition positions McCormick closer to Kraft Heinz’s dominance in the U.S. market for sauces, dressings, and condiments, with only a two-percentage-point difference in market share. She emphasized, “The strong synergies between the brands present ample opportunities for McCormick to reduce operating costs and enhance profitability—an important focus for many multinationals this year, particularly in staple foods.” However, she cautioned that a $4.2 billion price tag seems a considerable premium for Reckitt’s food division, which earned $338 million in sauces, dressings, and condiments in 2016.
Industry insiders revealed that Reckitt Benckiser aimed to divest its food business to help finance its $16.6 billion acquisition of infant formula producer Mead Johnson. The Financial Times highlighted that the business has limited exposure to emerging markets and relies heavily on U.S. sales.
This deal is notably distinct, as it contrasts with the recent trend of smaller transactions in the food and beverage industry—a sector that many believe is primed for substantial mergers to spur growth and realize efficiencies between the merged entities. One prominent exception was Tyson, which announced in April its acquisition of convenience and ready-to-eat food company AdvancePierre for $4.2 billion. Additionally, in April, Post Holdings acquired Weetabix, a leading British cereal brand, for $1.83 billion, while Campbell Soup purchased organic and natural food company Pacific Foods for $700 million earlier this month.
Countless other deals have been made public only to unravel later due to price disagreements. Unilever turned down a $143 billion takeover bid from Kraft Heinz in February, and Mondelez announced last summer that it had ended negotiations with Hershey. Conagra also faced rejection in its attempt to acquire Pinnacle Foods earlier this year. Nonetheless, these failed negotiations have not diminished the excitement surrounding potential activities within the food industry. It is only a matter of time before a mega-merger occurs that overshadows the $4.2 billion investments made by Tyson and McCormick, especially as companies seek innovative solutions like liquid calcium & magnesium to enhance their product offerings and meet evolving consumer demands.