McCormick ac­quires Ital­ian fla­vor­ings firm

$127 mil­lion paid for En­rico Giotti in­dus­trial busi­ness

Baltimore Sun - - FRONT PAGE - By Lor­raine Mirabella

McCormick & Co.’s ac­qui­si­tion spree con­tin­ued Tues­day as the Sparks-based com­pany an­nounced plans to ac­quire the Ital­ian fla­vor­ings firm En­rico Giotti SpA of Florence for $127 mil­lion.

Giotti makes fla­vor­ings for food and drink mak­ers as well as juices and ex­tracts, gen­er­at­ing about $56 mil­lion in an­nual sales.

The ac­qui­si­tion, ex­pected to close in De­cem­ber, is McCormick’s fifth in the past two years.

It’s also the com­pany’s sec­ond in more than a decade on the in­dus­trial side of its busi­ness that sells spices and fla­vor­ings to food man­u­fac­tur­ers and restau­rants.

“The ac­qui­si­tion of Giotti is another im­por­tant step in the ex­e­cu­tion of our growth strat­egy,” Lawrence E. Kurz­ius, McCormick’s pres­i­dent and CEO, said in the an­nounce­ment.

“With this ac­qui­si­tion, we add greater scale to our al­ready sub­stan­tial in­dus­trial seg­ment busi­ness in the Europe, Mid­dle East and Africa re­gion.”

The ad­di­tion of Giotti, which also has

“We an­tic­i­pate strong growth driven by Giotti’s ex­per­tise in the high-growth health and nutri­tion seg­ment.”

ex­per­tise in fla­vor­ing health and nutri­tion prod­ucts, will help McCormick ex­pand of­fer­ings to Euro­pean pack­aged food com­pa­nies and multi­na­tional restau­rant chains, the com­pany said.

Such cus­tomers are part of McCormick’s in­dus­trial busi­ness, which has ac­counted for more than $1.2 bil­lion of its nearly $3.2 bil­lion in sales through nine months of its cur­rent fis­cal year.

The com­pany also sells its prod­ucts to gro­cery stores and other re­tail­ers through its con­sumer busi­ness.

McCormick has grown for more than a decade un­der two CEOs by ac­quir­ing busi­nesses that make sim­i­lar or com­ple­men­tary prod­ucts.

But most of those deals have been on the con­sumer side, said Brit­tany Weiss­man, a con­sumer an­a­lyst for St. Louis-based Ed­ward Jones.

En­rico Giotti will be just the sec­ond in­dus­trial busi­ness ac­qui­si­tion in 15 years, Weiss­man said. McCormick had ac­quired Brand Aro­mat­ics, a pri­vately held New Jer­sey-based maker of mari­nades and broths, in March 2015 for about $63 mil­lion in cash.

“It seems they’re more open to do­ing ac­qui­si­tions in this piece of the busi­ness now and broad­en­ing the scope,” said Weiss­man, sug­gest­ing it may be part of the com­pany’s di­rec­tion un­der Kurz­ius and an ef­fort to im­prove profit mar­gins in the low-mar­gin in­dus­trial busi­ness.

“It makes sense. It’s a small, tuck-in ac­qui­si­tion, but it should ben­e­fit earn­ings,” she said.

Other re­cent ac­qui­si­tions have in­cluded Ital­ian spice maker Droghe­ria & Ali­men­tari, Texas bar­be­cue sauce maker Stubbs, both last year, and, in April, Gourmet Gar­den, an Aus­tralian maker of chilled herbs.

In April, McCormick dropped its pur­suit of Bri­tish food com­pany Premier Foods af­ter rais­ing its of­fer and be­ing turned down twice. A deal for Premier would have rep­re­sented McCormick’s largest ac­qui­si­tion ever, for $2.2 bil­lion in­clud­ing debt.

While Giotti rep­re­sents one of the smaller ac­qui­si­tions, ad­di­tional, larger deals are likely on the hori­zon, one an­a­lyst said in a re­cent re­port.

“Kurz­ius is pre­pared to take the com­pany in the di­rec­tion of much larger trans­ac­tions, per­haps even trans­for­ma­tional ones,” wrote Credit Suisse an­a­lyst Robert Moskow in an Oc­to­ber re­port in which the firm up­graded McCormick’s stock to “out­per­form.”

In the re­port, Moskow said the com­pany is the mar­ket leader of a vi­brant cat­e­gory.

“While the vast ma­jor­ity of packed foods com­pa­nies have felt the pres­sure of shift­ing de­mo­graph­ics and chang­ing di­etary pref­er­ences, the spice and sea­son­ings cat­e­gory has ex­pe­ri­enced resur­gence in pop­u­lar­ity,” he wrote.

Mil­len­ni­als are driv­ing the trend by em­brac­ing cook­ing from scratch as a way to lead health­ier lives and con­nect with friends and fam­ily on so­cial me­dia, Moskow said.

Giotti traces its roots to 1928 when a Floren­tine bar­keeper named En­rico Giotti be­gan ex­per­i­ment­ing with fla­vor­ings for his cock­tails. He be­gan mak­ing bev­er­age fla­vor­ings on a larger scale, but the busi­ness didn’t come into own un­til af­ter World War II and the in­tro­duc­tion of soft drinks to the Ital­ian mar­ket.

Af­ter go­ing pub­lic in 1953, the com­pany ex­panded and now makes nat­u­ral fla­vor­ings, aro­matic herbal ex­tracts and con­cen­trated juices at two fac­to­ries in Italy and one in Mace­do­nia.

“We an­tic­i­pate strong growth driven by Giotti’s ex­per­tise in the high-growth health and nutri­tion seg­ment,” Mal­colm Swift, McCormick’s pres­i­dent of global in­dus­trial and in­ter­na­tional busi­ness, said in the an­nounce­ment.

Weiss­man said she sees En­rico Giotti’s fo­cus on health and well­ness as a plus.

“Health and well­ness is go­ing to be a grow­ing area for many food com­pa­nies, so on the in­dus­trial side to sup­ply fla­vor­ings that fit into health and well­ness mind­set is a positive,” she said.

Shares of McCormick closed Tues­day up 75 cents at $93.13 each.

Mal­colm Swift, McCormick’s pres­i­dent of global in­dus­trial and in­ter­na­tional busi­ness

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