McCormick & Company Inc. has signed a definitive agreement to acquire the parent company of Cholula Hot Sauce, a premium hot sauce brand, from L Catterton for $800 million in cash.
“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,” said Lawrence E. Kurzius, chairman, president and CEO. “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.”
“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,” said Maura Mottolese, CEO of Cholula. “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.”
Cholula’s annual net sales are approximately $96 million and are 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 made in Mexico using high-quality ingredients and is based on a 100-year old recipe comprised of a unique blend of fresh peppers and regional spices. Hunt Valley, Maryland-based McCormick plans to retain the Cholula brand name in both the retail and foodservice channels.
Long-term value
McCormick says it anticipates the acquisition will drive long-term shareholder value as follows:
- Increases breadth and reach through complementary products and an expanded consumer base: Cholula’s products are highly complementary to McCormick’s existing hot sauce portfolio and will broaden the flavor offerings to consumers and foodservice operators. Cholula has strong brand equity and a differentiated, traditional Mexican hot sauce taste profile that builds on McCormick’s existing portfolio. 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 leveraging operational expertise and infrastructure: McCormick plans 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. 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.
- Expands branded foodservice distribution and increases penetration: McCormick’s broad presence across all foodservice channels is expected to strengthen Cholula’s go-to-market model. 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 an attractive margin profile which is expected will be accretive to McCormick’s Consumer and Flavor Solutions segments, excluding transaction and integration costs. McCormick also expects the transaction to be accretive to adjusted earnings per share in 2021.
Financial terms
McCormick has entered into a definitive agreement to acquire 100 percent of the parent company of Cholula for $800 million on a cash free, debt free basis, subject to customary working capital adjustments. The transaction is expected to be completed by the end of the calendar year and will be financed with a combination of cash on hand and commercial paper. Upon closing, the company will incur certain transaction costs that will impact earnings per share. The transaction is subject to customary closing conditions.
Goldman Sachs and Cleary Gottlieb Steen & Hamilton LLP are serving as financial advisor and legal counsel, respectively, to McCormick in connection with the transaction.
