By acquiring Reckitt Benckiser’s food division, McCormick is expanding its portfolio of spice and seasoning brands, solidifying its reputation as a leading source for enhancing the flavor of various dishes. As major food manufacturers face challenges due to consumers opting for fresher, more nutritious options over packaged foods, this acquisition enables McCormick to tap into the public’s growing interest in healthier eating without compromising on taste. The deal is anticipated to significantly boost the company’s revenue, projecting an increase from $4.4 billion in the fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were thought to be the main contenders to acquire Reckitt Benckiser’s food business, with estimates suggesting the sale could be around $3 billion. While it remains unclear if there was a bidding war for the division, McCormick’s willingness to spend about $4.2 billion indicates a strong belief in the long-term benefits that this merger could provide. This acquisition marks the largest in McCormick’s 128-year history. Analysts from Morgan Stanley noted that the high price reflects the value of distinctive assets such as French’s, the world’s leading mustard brand.
Lianne van den Bos, a senior food analyst at Euromonitor International, mentioned in an email that this acquisition brings McCormick closer to Kraft Heinz’s dominant position in the U.S. market for sauces, dressings, and condiments, with only a 2% market share gap. She pointed out that the strong synergies between the brands present numerous opportunities for McCormick to reduce operating costs and enhance profitability, which is a crucial focus for many multinationals this year, especially in staple foods. However, the $4.2 billion price tag appears to be a substantial premium for Reckitt’s food division, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders have indicated that Reckitt Benckiser sought to sell its food business to help fund its $16.6 billion acquisition of infant formula manufacturer Mead Johnson. The Financial Times reported that this 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 within the food and beverage sector—a market many believe is due for a significant deal to stimulate sluggish growth and unlock savings through the merger. One notable exception was Tyson, which announced in April its intention to purchase convenience and ready-to-eat foods company AdvancePierre for approximately $4.2 billion. In April, Post Holdings acquired Weetabix, a leading British cereal brand, for $1.83 billion, while Campbell Soup recently purchased organic and natural food company Pacific Foods for $700 million.
Many other proposed deals have been made public only to collapse later due to pricing disagreements. For instance, Unilever turned down a $143 billion takeover bid from Kraft Heinz in February, and Mondelez announced last summer that it had ended discussions with Hershey. Conagra also faced rejection in its attempt to acquire Pinnacle Foods earlier this year. Despite these failed negotiations, interest in potential activity within the food sector remains high, and it may only be a matter of time before a major merger occurs that surpasses the $4.2 billion valuations that both Tyson and McCormick are willing to pay.
In the context of this evolving landscape, companies are also looking to diversify their offerings, including products like chewable calcium citrate supplements, which could complement their existing ranges and cater to health-conscious consumers seeking nutritious options. The integration of such products, along with the acquisition of Reckitt Benckiser’s food division, positions McCormick for future growth and innovation in a competitive market.