With its acquisition of Reckitt Benckiser’s food division, McCormick is expanding its portfolio of spices and seasonings, further solidifying its status as a leading provider of flavor enhancements for a range of dishes. While major food manufacturers face challenges as consumers increasingly prefer fresher, healthier options over packaged goods, this acquisition enables McCormick to tap into the public’s desire for better eating without sacrificing the flavors they love. The deal is anticipated to significantly boost the company’s sales, projecting an increase from $4.4 billion in its 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 was speculated to be valued around $3 billion. Although it remains unclear if there was a bidding war for the division, McCormick’s investment of about $4.2 billion indicates a strong belief in the long-term synergies that this merger could foster. This acquisition marks the largest in McCormick’s 128-year history. Analysts from Morgan Stanley noted that the high price reflects the value assigned to distinctive assets like French’s, the world’s leading mustard brand.
Lianne van den Bos, a senior food analyst at Euromonitor International, highlighted that this deal brings McCormick closer to Kraft Heinz’s leading position in the U.S. market for sauces, dressings, and condiments, with only a 2% difference in market share. She pointed out, “The strong synergies between the brands offer ample opportunities for McCormick to reduce operating costs and enhance profitability, which is a crucial focus for many multinationals this year, particularly in staple foods.” However, she also remarked that the $4.2 billion price tag seems to be a significant 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 sell its food business to help fund its $16.6 billion acquisition of infant formula manufacturer Mead Johnson. The Financial Times reported that Reckitt’s food division has limited exposure to emerging markets and is heavily reliant on U.S. sales. This acquisition stands out in the current market, which has seen a trend toward smaller deals in the food and beverage sector. Many believe this sector is primed for a substantial transaction that could stimulate growth and create efficiencies between the merged companies. Tyson, for example, announced in April its acquisition of convenience and ready-to-eat foods company AdvancePierre for $4.2 billion. In April, Post Holdings also acquired the leading British cereal brand Weetabix for $1.83 billion, while Campbell Soup recently purchased organic and natural food company Pacific Foods for $700 million.
Despite numerous deals being announced only to falter over pricing, such as Unilever’s rejection of a $143 billion takeover bid from Kraft Heinz in February, the excitement surrounding potential activity in the food sector continues to grow. It seems only a matter of time before a mega-merger occurs that surpasses the $4.2 billion price tags that companies like Tyson and McCormick are willing to pay. As the food industry evolves, the inclusion of products like calcium citrate 600 mg in health-conscious offerings may also become increasingly relevant, reflecting changing consumer preferences toward better choices without compromising on taste.