“We’ve always viewed Unilever Foods as a great strategic fit,” McCormick’s chairman, president and CEO Brendan Foley told analysts yesterday (31 March) after unveiling perhaps the most eye-catching piece of M&A in food in the last decade.
“Today marks a major milestone for McCormick,” Foley said. “We are bringing together two leading organisations, McCormick and Unilever Foods, to create a strong, scaled and growth-oriented company that will be flavour-focused and exceptionally well positioned to succeed in today’s dynamic environment.”
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The share prices of both companies declined after they announced, at 1pm UK, a deal to bring together the US spices and sauces group with the bulk of the food assets of one of the world’s largest consumer-goods businesses.
Foley and CFO Marcos Gabriel – who will both stay and lead the new company – talked up the prospects of a business both in terms of revenue growth and the “cost synergies” they say can be derived from the deal.
Unilever CEO Fernando Fernandez, meanwhile, was also on hand to say not just that the transaction is part of the FMCG giant’s recent moves to “reshape our portfolio towards high-growth categories” but also that the company’s investors – for they will own more than half the new group – can benefit from “meaningful participation in the upside of a scaled global flavoured-focused leader, with a strong growth and margin profile”.
As Just Food reported two weeks ago when Unilever and McCormick confirmed they were in talks over a possible deal, market observers could see the potential benefit in the combination but the nature and scale of such a transaction meant the prospect was met with some caution.
Now the mechanics of the deal have been announced, there may be some investors unsure about their position in their new company but, Scott Marks, a Wall Street analyst covering McCormick for US investment bank Jefferies, believes the rationale for the transaction is sound.
“McCormick’s planned merger with Unilever Foods represents a step‑change in scale, expanding emerging markets exposure, broadening foodservice reach, and growing McCormick’s positioning in structurally advantaged flavour categories. While the deal multiple, execution risk, and leverage weigh on near-term sentiment and we understand if investors want to bail, we think the strategic rationale of the deal makes sense and potentially sets up McCormick for a stronger future growth profile,” he wrote in a note to clients yesterday.
And, speaking to analysts yesterday, Foley and Gabriel were asked for more detail on a series of topics, including where they saw the opportunities for sales growth, their plan to bring the two businesses together and, given the mixed track-record of large M&A in food, why they believe this deal will succeed.
Flavour focus
Flavour is at the centre of the thesis for the growth potential of the new McCormick. With brands including Cholula, Knorr and Schwartz, Foley and the McCormick management team believe the new $20bn-sales company can benefit from trends shaping the food sector.
“We will continue to flavour calories while others compete for them,” was a notable line from Foley as he outlined the rationale for bringing Unilever and McCormick together, offering a product portfolio that will also include Hellmann’s mayonnaise and French’s mustard.
“Flavour,” Foley said, “is a structurally advantaged category”. The McCormick CEO, who has spent more than a decade at the business (and, before that, eight with Heinz), claimed flavour “transcends age, culture, dietary preferences and income levels, making it both resilient and highly relevant in a dynamic consumer environment”.
And, though it’s said McCormick has, for example, wanted to buy Knorr for decades, Foley called out some more modern trends the combined business could target. “As consumers increasingly focus on cooking at home, adding more protein and produce and pursuing healthier lifestyles, flavour plays a critical role in elevating those choices. Younger consumers, particularly Gen Z, are notable contributors to these trends,” he said.
Geographic growth
So, they’re the macro trends on which McCormick believes it can capitalise and, ultimately, accelerate the growth of the new business.
In McCormick’s 2025 fiscal year, the company generated sales growth of 2%. The full-year sales growth from the Unilever food assets was 2.7%. Those figures would have given the new company growth of 2.4% last year. Three years after the deal closes (which the businesses say is expected to be in the middle of next year), they are forecasting annual sales growth of 3-5%.
“These are businesses that have been delivering volume-driven growth pretty consistently over the last several years, so we start with confidence in the base business,” Foley said yesterday.
As you’d expect, McCormick sees the chance to sell more of both companies’ brands in more markets, with Foley pointing to the US group’s Cholula hot-sauce brand in EMEA as an example. He also talked of the opportunity for McCormick to “expand more meaningfully in high-growth emerging markets” through Unilever’s distribution networks.
Asked to pinpoint where the revenue gains could be notable, Foley said he saw opportunities across markets. “If you think about in the Asia Pacific region, there are a number of markets that Unilever is in that we’re not in as an example, or in markets that we’re both in,” he said.
“We see opportunities, obviously, to drive even stronger growth in a market like China, for example. When you jump over to EMEA, there are a number of markets where McCormick doesn’t have presence and so we see opportunities and revenue synergies there.”
Fernandez added: “I believe that McCormick brings an incredible product range and Unilever brings an incredible distribution infrastructure globally. When you can leverage these two things, you have huge opportunities.”
Can foodservice dish up growth?
McCormick’s presentation listed “accelerating growth” of brands in “existing and new regions” among the “meaningful opportunities” from the deal. “Realising the potential of a combined foodservice model” was another.
Both Foley and Fernandez sought to outline what they see as the combined company’s stronger prospects in foodservice. Some $6bn of the new group’s $20bn in annual sales are derived from the channel.
“In foodservice, the strategic thinking is particularly strong,” Foley said, pointing to “McCormick’s front-of-house brand equity” and the “deep back-of-house experience and operator relationships” of Unilever’s Food Solutions division.
In front-of-house, Foley pinpointed one brand. “When I think about the brand portfolio for Unilever, the opportunity as we see it right now is really about the Hellmann’s brand having more front-of-house presence,” he said. “We see that continued growing presence that we have on tabletops, in front-of-house and even on menus. We’ve had a lot of success getting and partnering with operators, particularly, sort of the regional chain-type operators getting on menu with our brands.”
In kitchens, it appears there is a belief Unilever’s strength will come into play. “The Knorr brand is very strong back of house,” Foley said. “Back-of-house, the McCormick brand name is back there, obviously with herbs and spices and seasonings, as is the Knorr brand. We see that as an opportunity, obviously, to bring in more of the McCormick type of expertise in cooking, which is not an overlap with Knorr.”
The cost equation
The companies said the new business expects to generate around $600m of “annual run-rate cost synergies net of growth reinvestments”.
The synergies are projected to be captured over a three-year period. Around two-thirds would be found by the end of year two, “driven by procurement, manufacturing and SG&A”, McCormick said. It plans to reinvest around $100m “incremental cost and revenue synergies to further drive growth”.
McCormick’s underlying operating margin stood at 17% in its 2025 fiscal year. For the Unilever food assets moving to the new group, it was 24%. Combined, the new company would generate 21%. By the end of that third year after the deal is done, Foley and his colleagues are targeting 23-25%.
“The synergy expectations are compelling given the limited overlap and existing efficiency levels of both organisations and reinforce our confidence in the value creation potential of this combination,” Gabriel said. “We have identified actionable savings across procurement, media, manufacturing, logistics and SG&A.”
McCormick says the deal will be “meaningfully accretive” to “growth, operating margin and adjusted earnings” in the first full year after its closed. Asked if he could give more detail on the extent to which earnings would be boosted, Gabriel said the company was not publishing a forecast – yet.
“It is meaningfully accretive in year one, post-close, across all lines of the P&L, including, obviously, EPS,” he said. “As we get near to the close, we’ll be able to provide more information as we continue to learn about the business.
“This business has a very substantial margin profile. Gross margin is very healthy and we’ll be investing back in the business, as we have done in the past, both organisations, and driving operating profit from 21% currently to a range of 23-25%, with the synergies of $600m flowing through to the to the bottom line.”
Unilever’s food margins
The margins Unilever has managed to generate from food are impressive relative to industry levels and observers believe an important factor of whether this deal might be deemed a success is whether the new company can get its margin profile growing towards that level.
That is certainly McCormick’s plan but the company’s management and Fernandez faced a question from Barclays’ Andrew Lazar about whether the brands have been invested in enough to make those margins sustainable.
“We have been investing around 10% in brand marketing investment behind our food business, so it’s probably one of the best supported businesses in the industry,” Fernandez said.
Gabriel added: “We are going to continue to invest. The momentum will continue going forward.”
Food’s track-record with big M&A
Perhaps one of the reasons for the immediate falls in the share prices of both McCormick and Unilever yesterday could be explained by the record of major M&A in the food industry and whether such deals really do lead to greater value for investors. That sentiment was certainly put forward to Just Food two weeks ago when the two companies said there were in talks.
McCormick has experience in growing its business through M&A but this deal is the largest in its history and, as a Reverse Morris Trust transaction, complex. Lazar pressed the company’s management on why it was comfortable conducting such a sizeable deal and the integration plans it has in place.
Foley said McCormick had brought in third-party advisers to support the business as it draws up plans ahead of the forecast close of the deal in the middle of next year. “We have a year or more to thoughtfully develop a disciplined plan and that’s really an important period of time to make sure that we get this right,” he said.
“During that period of time, there are dedicated leadership that will be on this. It’s a combination of not only McCormick leaders being a part of this but also Unilever leaders too, because they’re also committed to this being a successful integration.
“We do have to execute a thoughtful separation. It will be supported by TSA [transition service] agreements and we have a very experienced partner in Unilever doing this. Unilever employees are remaining with the business and that’s important concept to think about. There might be many regions in which simply McCormick doesn’t operate, so you can imagine the Unilever employee base and talent really becomes part of that business, so there’s sort of minimal disruption in that context, and so we’re able to still run the business very effectively.”
Towards the end of the call, Foley was asked whether the macro changes shaping the food industry had changed the timeline for the deal between McCormick and Unilever to happen. There have been a number of major transactions in food across the last 12-18 months as business seek to get their portfolios in the right shape to meet changes in consumer demand.
“I think obviously there’s a lot going on in the world right now and so that’s important to kind of keep in mind but we’ve always viewed Unilever Foods as a great strategic fit,” Foley said.
“We’re in this moment where you can pick another year and something’s going to be going on but it still comes back to: is this really a strategically strong fit and does it make sense? When an opportunity presents itself like this, we think that it then becomes the right time.”
He added: “This transaction is about the long-term potential of the combination and where we see multiple levels of growth in established in emerging markets and across channels and brands.”
