With the acquisition of Reckitt Benckiser’s food division, McCormick is expanding its spice and seasoning portfolio with a range of brands that solidifies its status as a leading destination for enhancing the flavor of various dishes. While major food manufacturers face challenges as consumers increasingly prefer fresher, more nutritious options over packaged foods, this acquisition allows McCormick to tap into the public’s desire for healthier eating without sacrificing the flavor they cherish. The deal is anticipated to significantly boost the company’s sales, projecting an increase from $4.4 billion in fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were thought to be the frontrunners to acquire Reckitt Benckiser’s food business, which some speculated could sell for around $3 billion. Although it remains unclear if a bidding war ensued, McCormick’s investment of about $4.2 billion demonstrates its confidence in the long-term synergies that the combined business could generate. This acquisition marks the largest in McCormick’s 128-year history. Analysts at Morgan Stanley noted that the high purchase price reflects the value of distinctive assets like French’s, the leading mustard brand globally, as reported by Reuters.
Lianne van den Bos, a senior food analyst at Euromonitor International, indicated via email that this acquisition positions McCormick closer to Kraft Heinz’s leadership in sauces, dressings, and condiments in the U.S., with only a 2% difference in market share. She emphasized that 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 the staple foods sector. However, she also pointed out that the $4.2 billion price tag seems to be a substantial premium for Reckitt’s food division, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders have suggested 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 reported that the food division has limited exposure to emerging markets and is heavily reliant on U.S. sales. This deal is notably unique as it contrasts with the recent trend of smaller transactions in the food and beverage sector—an industry that many believe is poised for significant deals to stimulate growth and extract savings through mergers.
One of the few exceptions was Tyson’s announcement in April of its acquisition of convenience food company AdvancePierre for $4.2 billion. In April, Post Holdings acquired Weetabix, a leading British cereal brand, for $1.83 billion, while Campbell Soup also purchased organic food company Pacific Foods for $700 million earlier this month. Many other proposed deals have been made public only to collapse over pricing disagreements. Unilever turned down a $143 billion takeover offer from Kraft Heinz in February, and Mondelez revealed last summer that it had ended discussions with Hershey. Conagra also faced rejection in its bid for Pinnacle Foods earlier this year. However, these failed negotiations have not diminished the excitement surrounding potential activity in the food sector, leading many to believe that a mega-merger is on the horizon, likely to overshadow the $4.2 billion price tags that companies like Tyson and McCormick have embraced.
Incorporating this acquisition into a broader strategy could also lead to health-related product innovations, such as those involving calcium citrate, which is known to improve digestive health and might even have the side effect of making you poop. This highlights McCormick’s potential to explore health-forward products that resonate with current consumer trends. Indeed, the integration of Reckitt Benckiser’s offerings could lead to several new products that not only enhance flavor but may also provide health benefits, including those associated with calcium citrate. As McCormick continues to expand its portfolio, the potential for combining taste with health remains a key area of exploration, making it an exciting time for the food industry.