January 14, 2021

By Lynda Kiernan, Global AgInvesting Media

The global flavors segment has seen its fair share of consolidation and dynamic activity within the past few years, resulting in a string of big money deals. 

Global players have been positioning themselves to expand beyond commodities and up the production chain in order to gain a foothold in higher margin businesses, while companies and investors seek to capitalize upon consumer trends that lean toward flavorful but healthy foods – trends that have made the natural flavors category one of the fastest growing in both developed and emerging markets.

Most recently, McCormick & Co. announced that it has acquired 100 percent of the shares of  FONA International – a producer of clean and natural flavors – for $710 million in cash. 

A seismic shift by consumers toward more natural and transparent food ingredients and away from processed and synthetic options is driving strong growth in the natural flavors and colors categories.

The striving for the holy grail of a “clean label” to meet this demand is expected to translate into a CAGR of 5 percent for the global food flavors market, to reach a value of $19.72 billion by 2026. This is up from a value of $13.31 billion in 2018, and the natural flavors market is expected to see a growth rate of 6.3 percent between 2019 and 2027 to reach a value of $20 billion, according to research conducted by Reports and Data.

This deal will give McCormick the ability to capitalize on such potential by strengthening its clean and natural platform and its position in the clean and natural food space. It will also expand McCormick’s brand in health and performance nutrition applications, add manufacturing capacity, drive scale, and accelerate its global flavors growth.

“The acquisition of FONA reinforces McCormick’s global growth strategy as FONA expands the breadth of our flavor solutions segment into attractive categories, as well as extends our technology platform and strengthens our capabilities,” said Lawrence E. Kurzius, chairman, president, and CEO, McCormick. “This acquisition also accelerates the strategic migration of our portfolio to more value-added and technically insulated products and thus, is expected to be accretive to gross margin.”

FONA also gives McCormick a technological advantage through its proprietary encapsulation methods and highly experienced research and development team, and greater customer engagement bringing complementary global and mid-tier customers, insight capabilities, and customer approach. 

“FONA is well known in the market, in part because of its strong customer engagement platform, talented employees and investments in its future, which have driven growth for both FONA and its customers,” said Kurzius. “FONA will be the cornerstone for accelerating McCormick’s flavor platform in the Americas. With our passion for flavor, focus on insight-driven innovation and differentiated customer engagement, we look forward to continuing and building upon the legacy created by the Slawek family.”

This is the second high-value acquisition completed by McCormick in recent months following the company’s acquisition of hot sauce maker Cholula for $800 million in November 2020 – a move reflective of the company’s greater reach into the condiments segment. 

Each acquisition is expected by McCormick to be accretive. FONA posts annual sales of approximately $114 million with expectations for growth in the mid-to-high single digits, and Cholula has yearly sales in the range of $96 million with similar growth expectations. 

“McCormick has a history of creating value through acquisitions,” said Kurzius. “As we continue to build the McCormick of the future and create long-term shareholder value, we are confident this is a great strategic fit with our vision of being a leading flavor company. The employees of FONA share with McCormick a great history and commitment to core values and purpose, doing what is right while driving industry leading financial performance, and we look forward to welcoming them to the McCormick family. Together we will achieve continued success.”

McCormick is far from alone in searching out a stake in the flavors market. Within the past year alone, Ambienta, the largest sustainability-focused private equity investor in Europe, continued to build out its natural flavors and ingredients platform Nactarome Group with the acquisition of UK-based Create Flavours in May 2020. 

Two months later, in July 2020, private equity firm The Riverside Company added to its Riverside Flavor Platform with the acquisition of GSB & Associates – a flavor house specializing in bespoke flavor development. 

And in September 2020, EQT – a global investment organization with more than EUR40 million (US$47 million) in assets under management across 19 funds with portfolios spanning Europe, North America, and Asia-Pacific – agreed to acquire the Natural Colors business from Chr. Hansen for EUR 800 million (US$943 million). 

In recent years other major flavor deals and developments have been noted by GAI News including the acquisition of WILD Flavors & Speciality Ingredients by ADM for $2.92 billion, forming the basis for a flavors and speciality ingredients business unit for ADM. 

Paine Schwartz Partners also followed suit, creating a new growth platform with its undisclosed strategic investment in Lyons Magnus Inc., a top developer and manufacturer of fruit-based flavor solutions for the dairy, foodservice, and healthcare industries. 

– Lynda Kiernan is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, and HighQuest Group’s Oilseed & Grain News. She is also a contributor to the GAI Gazette. She can be reached at lkiernan@globalaginvesting.com.