Acquiring Unilever's food division would allow McCormick to deepen its exposure to the fast-growing sauce and condiment markets and expand its reach outside the US, where it generates around 60% of its sales.
McCormick & Co. has been called the spice king, but with its latest acquisition push it's trying to add condiments to that moniker.
The Hunt Valley, Maryland-based company is in talks to buy Unilever Plc's food division, which would give it global brands such as Hellmann's mayonnaise to pair with its French's mustard and Frank's RedHot brands.
The deal would be filled with risks. Unilever's food business generated about $15 billion in sales last fiscal year, doubling all of McCormick. The transaction could value the Unilever unit at more than $30 billion -- dwarfing McCormick's biggest deal ever many times over.
McCormick's shares slid as much as 2.6% on Friday. The stock had fallen about 20% this year, following annual declines in three of the past four years as the company's results have been hit by high inflation and competition from store brands.
McCormick declined to comment beyond confirming Bloomberg Terminal it's in talks with Unilever.
With the deal, McCormick can deepen its exposure to the fast-growing sauce and condiment markets, which made up just 4% of its sales. That sector is particularly popular among younger consumers, with US-based shoppers in that demographic spending more on hot sauces than ketchup, according to the company.
Acquiring Hellmann's would give McCormick the world's largest mayonnaise brand, adding to a mayo business that already includes smaller players. It recently upped its stakeBloomberg Terminal in a joint venture in Mexico that makes Mayonesa McCormick, the country's market leader.
McCormick's biggest push into condiments came about a decade ago when it bought Reckitt Benckiser Group Plc's food division for $4.2 billion, its largest deal ever and giving it French's and Frank's RedHot sauce.
Investors will likely welcome the Unilever acquisition due to the scale and efficiencies the new entity will have, according to Robert Moskow, an analyst for TD Cowen.
"The combination of McCormick's condiment business with Unilever's food assets has made sense to most investors we speak with for a very long time," Moskow wrote in a note to clients.
While execution is a risk, Barclays said in a note that McCormick has a "strong track record and experience with large equity-financed deals."
McCormick would be buying assets that have posted mixed results as consumers, pinched by inflation, have traded down into cheaper, private-label options. Last year, organic sales grew 1.9%, the second slowest pace since 2020.
Multinationals have been shedding food brands as consumer spending power has been weakened amid high inflation and supermarkets gaining market share with their own brands. And the boom in weight-loss drugs has pushed people to eat less and choose healthier options. Unilever has already offloaded its ice cream business, which includes the Ben & Jerry's brand.
For McCormick, the deal would expand its reach outside the US, an area its business has struggled to gain a foothold.
Currently, the spice maker generates around 60% of its sales in the US, according to data compiled by Bloomberg. China is its next biggest market for which data is available, contributing slightly less than 5%.
The integration of these assets would be led by Brendan Foley, who became McCormick's chief executive officer in 2023 after holding various jobs at the company. He joined the company after spending about 15 years at HJ Heinz, now Kraft Heinz.
Kraft Heinz recently ended talks to sell assets under new CEO Steve Cahillane, potentially upping competition between the ketchup maker and the enlarged McCormick entity.
Root Beer Origins
McCormick, which got its start selling root beer in 1889 before making spices like Old Bay, has been using acquisitions as part of its growth strategy for years. And multiple McCormick management teams have contemplated smaller transactions for some of Unilever's portfolio, Moskow wrote, while this deal "goes even farther than that" and has the potential for "significant opportunities."
Moskow estimated the combined company can generate sales and savings efficiencies of more than $500 million over time, with the new company's scale allowing it to assert more influence with retailers.
Packaged food companies have been valued at a median 8.7 times earnings before interest, tax, depreciation and amortization in takeovers announced over the past five years, according to data compiled by Bloomberg.
Unilever's food business has a potential equity value of as much as €29 billion ($33 billion), according to Bloomberg Intelligence.