HUNT VALLEY, MD — McCormick & Company Inc., a global leader in flavor, announced Dec. 30 that it has purchased 100% of the shares of FONA International, LLC and certain of its affiliates, a privately-held company. FONA is a manufacturer of clean and natural flavors providing solutions for a diverse customer base across various applications for the food, beverage and nutritional markets. McCormick has acquired the business for $710 million in cash.
Lawrence E. Kurzius, Chairman, President and Chief Executive Officer said, "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. 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's portfolio is highly complementary to McCormick's and will provide our customers with an even more comprehensive product offering to meet the growing demand for clean and flavorful eating, drinking and nutrition experiences.
"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." Kurzius added, "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."
Joseph Slawek, Founder, CEO & Chairman of FONA International said, "The Slawek family is very proud of the customers, the employee culture and the company we have built. We are excited to see the next generation of FONA flourish as part of McCormick. We are confident McCormick will further enable FONA's forward momentum by continuing to make investments in growth initiatives, capabilities and people. Fueled by the power of McCormick, FONA's success will be accelerated. FONA, in turn, will be a key driver in advancing McCormick's global flavor leadership."
Mr. Kurzius continued, "McCormick has a history of creating value through acquisitions. 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.
FONA's annual sales are approximately $114 million and are expected to grow at a mid-to high-single-digit rate. Founded more than 30 years ago, FONA is a leading independent manufacturer of flavors, with a focus on nutritional and natural products and a well-recognized brand that McCormick plans to retain. The business is headquartered in Illinois and has approximately 220 employees with a state-of-the art manufacturing and technical innovation center.
McCormick Anticipates the Acquisition of FONA Will Drive Long-Term Shareholder Value
- Broadens Product Offering and Accelerates Flavor Growth: FONA's diverse portfolio of flavors, including flavors for health and performance nutrition applications, broadens McCormick's value-add offerings with products that are highly complementary to its existing portfolio. By combining the portfolios and infrastructures, McCormick adds manufacturing capacity as well as greater scale and expects to accelerate its global flavor growth.
- Expands Capabilities and Technology Platform: McCormick is augmenting its capabilities with FONA's highly experienced research and development team and extending its technology platform with additional proprietary encapsulation methods. These expand McCormick's innovation capabilities, particularly with the added expertise in flavoring health and performance nutrition products across a variety of applications. FONA's strong market position in this area advances McCormick's health and wellness portfolio.
- Strengthens Clean and Natural Leadership: McCormick's clean and natural platform is meaningfully enhanced with the addition of FONA's predominantly natural portfolio. McCormick is increasing its talent bench strength further enabling better-for-you flavor product development wins and strengthening its clean and natural leadership position.
- Enhances Customer Intimacy and Partnerships: FONA brings an industry leading customer engagement platform. The combination of McCormick and FONA's complementary global and mid-tier customers, insight capabilities and customer intimacy approaches, enhances McCormick's customer value proposition. The Company is well positioned to reach a broader customer base, deepen existing customer relationships by cross-selling and establish inroads with new customers while driving innovation.
- Accretive to Gross Margin: The addition of FONA's business is expected to be accretive to McCormick's gross margin. The Company also anticipates driving further margin expansion by achieving robust sales growth and further migrating the Flavor Solutions portfolio to more value-added and technically insulated products. McCormick also expects the transaction to be neutral to adjusted earnings per share in 2021 and accretive in 2022, excluding transaction and integration costs.
McCormick has purchased 100% of FONA for $710 million on a cash free, debt free basis, subject to customary working capital adjustments. McCormick will finance the transaction with cash and commercial paper.
While this transaction will increase McCormick's net-debt-to-adjusted EBITDA ratio, the Company is committed to a strong investment grade credit rating, paying down debt with anticipated strong cash flow generation and maintaining its dividend policy.