McCormick (MKC), the spices and seasonings leader, announced that it agreed to acquire RB Foods—the food division of Reckitt Benckiser Group—for $4.2 billion. The deal is a strategic fit because it will likely enhance McCormick’s competitive positioning in the US (SPY) condiments segment and expand its consumer base. McCormick’s acquisition of RB Foods will add iconic brands like Frank’s RedHot Hot Sauce to its portfolio, which will help the company emerge as a market leader in the hot sauce category. The company expects to complete the deal during 3Q17 or 4Q17.
Acquisitions drive growth
McCormick’s management noted that adding RB Foods will be accretive to its sales and margins. RB Foods will become part of McCormick’s consumer and industrial segment. Notably, the hot sauce segment is growing at a rapid rate. Frank’s RedHot Hot Sauce remains the top brand in the segment—it outpaces the category growth rate. Besides, the addition of other renowned brands including French’s Mustard and Cattlemen’s BBQ Sauce should help the company augment sales growth in the consumer and industrial segments.
Acquisitions have been the primary catalysts behind McCormick’s industry-leading growth. These strategic acquisitions strengthen its portfolio of brands. Acquisitions also improve its product pipeline and drive future revenues. McCormick’s past acquisitions helped it generate incremental sales amid the slow growth environment. Last year, the company acquired Gourmet Garden, Giotti, and Cajun Injector. The companies are all generating increased demand and contributing meaningfully to the top line growth.
In comparison, food manufacturers in the US are struggling to lift their sales as consumers shift towards wellness foods. McCormick’s peers including Kraft Heinz (KHC), Kellogg (K), Conagra Brands (CAG), and General Mills (GIS) have posted lower sales growth.
During the last reported quarter, McCormick’s management noted that acquisitions supplemented the top line by adding an incremental 3% to its growth. McCormick’s consumer segment sales rose 2% YoY (year-over-year) due to incremental sales from the Gourmet Garden acquisition. Gourmet Garden posted 2% growth in 2Q17. Meanwhile, the industrial segment’s sales rose 9% YoY, which reflects 4% incremental growth from the Giotti acquisition.