- McCormick & Company Inc. (NYSE: MKC) announced it signed a definitive agreement to buy the parent company of Cholula Hot Sauce for $800 million. These are the details.
McCormick & Company Inc. (NYSE: MKC) announced it signed a definitive agreement to buy the parent company of Cholula Hot Sauce — which is a premium hot sauce brand that delivers authentic Mexican flavor — from L Catterton for $800 million on a cash-free, debt-free basis, subject to customary working capital adjustments.
Cholula’s annual net sales are about $96 million and it is expected to grow mid-to-high single digits in a normalized environment beyond the COVID-19 pandemic. Cholula’s portfolio of six distinctive flavors is proudly made in Mexico and it uses high-quality ingredients. Plus it is based on a 100-year old recipe comprised of a unique blend of fresh peppers and regional spices. McCormick is planning to retain the Cholula brand name in both the retail and foodservice channels.
McCormick believes that the acquisition of Cholula is going to drive long-term shareholder value in several ways:
Increases Reach Through Complementary Products and an Expanded Consumer Base
Cholula’s products are complementary to McCormick’s existing hot sauce portfolio and will broaden the flavor offerings to consumers and foodservice operators. And Cholula has strong brand equity and a differentiated and traditional Mexican hot sauce taste profile that builds on McCormick’s existing portfolio. Plus Cholula’s passionate fan base — with a particular affinity among millennials is incremental to Frank’s RedHot loyal consumer base — including their product usage which is typically in Mexican dishes.
Drives Growth Through The Utilization Of Operational Expertise and Infrastructure
McCormick is planning to elevate Cholula’s brand awareness, increase the availability of its products, and extend the Cholula brand into new formats and eating occasions to drive trial and household penetration. And the company’s category management, e-commerce and marketing excellence in addition to its insight-driven innovation capabilities are expected to accelerate momentum, expand distribution and drive growth.
Expanding Branded Foodservice Distribution
McCormick’s broad presence across all foodservice channels is expected to enhance Cholula’s go-to-market model. And the stronger model — combined with McCormick’s culinary foundation and deep insights on menu trends — will expand the recipe inspiration and flavor solutions offered to operators and provide significant opportunities to drive growth through increased distribution and penetration.
Accretive to Margins
Cholula has a very attractive margin profile which the companies believe will expect to be accretive to McCormick’s Consumer and Flavor Solutions segments, excluding transaction and integration costs. And McCormick also expects the transaction to be accretive to adjusted earnings per share in 2021.
KEY QUOTES:
“The acquisition of Cholula accelerates McCormick’s growth opportunities within our condiment platform and broadens our portfolio in the hot sauce category with the addition of the Cholula brand. Hot sauce is an attractive, high-growth category and, as an iconic premium brand, Cholula is outpacing category growth. As McCormick continues to capitalize on the growing consumer interest in healthy and flavorful eating, Cholula, a brand known for authentic bold and spicy Mexican flavors, is a strong complement to our portfolio providing consumers and foodservice operators with an even more diverse product offering that we expect will strengthen our growth opportunities.”
“McCormick has a history of creating value through acquisitions. We have a proven track record for achieving our plans and accelerating the performance of acquired brands. We plan to grow Cholula by optimizing category management and brand marketing, while also expanding channel penetration, making McCormick the perfect home for the Cholula brand. As we remain focused on growth and creating long-term shareholder value, we are confident Cholula is a great strategic addition to the McCormick portfolio.”
— said Lawrence Kurzius, Chairman, President and CEO of McCormick & Company
“In the last 19 months, with the support, resources, and operational expertise of the L Catterton team, we established Cholula as a high-performing standalone business, vastly improved our commercial execution efforts, and pivoted our foodservice strategy to position Cholula for long-term growth and success. With McCormick’s extensive experience and unique insight into the hot sauce category and unmatched global flavor leadership, we look forward to capitalizing on new opportunities and reaching even greater heights together.”
— Maura Mottolese, Chief Executive Officer of Cholula
