McCormick & Co. agrees to acquire Cholula
$800M deal for the hot sauce company
McCormick & Co. has agreed to acquire the parent company of Cholula Hot Sauce for $800 million in cash in a deal expected to boost the spice maker’s condiment business.
The Hunt Valley spice and flavorings giant announced Tuesday that it will acquire the hot sauce brand from L Catterton, a Greenwich, Connecticut-based owner of consumer brands in food, home goods, apparel and other products.
Cholula, a premium brand known for spicy Mexican flavors, is outpacing others in the highgrowth hot sauce category, said Lawrence E. Kurzius, McCormick’s chairman, president and CEO, in the announcement. Cholula will complement McCormick’s hot sauce portfolio — which also includes Frank’s RedHot Hot Sauce — in both consumer and food service sales, he said.
“We’re building a platform around condiments broadly and hot sauce is the fastest-growing component of that,” Kurzius said in a Tuesday morning call with analysts.
Shares in McCormick jumped $3.80 each to close Tuesday, trading at $186.54.
Cholula has annual sales of about $96 million and is expected to grow in the mid-to-high single- digit range once t he COVID-19 pandemic subsides.
McCormick has expanded in part through acquisitions, including a $4.2 billion deal in 2017 to acquire the maker of Frank’s and French’s Mustard. The company plans to increase Cholula’s brand awareness and the availability of its products and extend it into new formats.
“We have a proven track record for achieving our plans and accelerating the performance of acquired brands,” Kurzius said.
Under L Catterton over the last
year and a half, the Cholula brand became a high- performing, stand-alone business, said Maura Mottolese, Cholula’s CEO, in the announcement.
“With McCormick’s extensive experience and unique insight into the hot sauce category … we look forward to capitalizing on new opportunities and reaching even greater heights together,” Mottolese said.
Made in Mexico, Cholula comes in six flavors and is based on a 100-year-old recipe that blends fresh peppers and regional spices. McCormick will keep the Cholula brand name.
Cholula is a good fit because of its strong brand loyalty, particularly among millennials who typically use it in Mexican dishes, McCormick said.
Both Frank’s and Cholula have room for growth, Kurzius said on the conference call, with Frank’s now at a 25% share of households.
“Their household penetrations are low compared to the awareness of the brand and the strength of the brand,” Kurzius said. “The brands do so well because the loyalty is high.”
The company expects the deal to close by the end of the year and to add to earnings per share in 2021. It will be financed with cash on hand and commercial paper.