McCormick & Co. Inc. is counting on a proven expansion strategy with its purchase of an Australian maker of packaged herbs, but experts say it's also positioning itself to meet growing demand for organic products that make healthy cooking more convenient.
The Sparks-based spice company announced Tuesday that it had acquired Botanical Food Co. Pty. Ltd., which it called a global market leader in chilled pre-packaged herbs, for $114 million.
Botanical Food's Gourmet Garden brand includes packaged lightly dried herbs, such as basil, chili pepper, chives, cilantro, ginger and parsley, and tubes of stir-in paste that can last up to three months. The brand has annual sales of $53 million and is growing at a double-digit annual rate.
"The Gourmet Garden brand offers a more convenient alternative to consumers who currently buy fresh herbs," said Lawrence E. Kurzius, McCormick's president and CEO.
McCormick sees its nearly fresh packaged herb products as complementing the spice maker's existing dried herb lines and giving it a presence in grocery stores' fresh produce departments. The Australian company exports its products to 15 countries, with the U.S. as its top market. Retailers in North America and Australia now account for more than 90 percent of the brand's sales.
Shares of McCormick rose as much as 74 cents per share after the announcement, but closed down 9 cents at $94.99 each on Tuesday.
McCormick's announcement came less than a week after the company dropped plans to pursue British food company Premier Foods in what would have been its largest acquisition ever — $2.2 billion, including debt, with a cash offer of 65 pence (94 cents) a share or $774 million. Premier, a maker of cake mixes, gravy and rice pudding and seasonings primarily for the United Kingdom market, had turned down two previous offers. McCormick walked away from the deal saying Premier was seeking too high a price.
Before dropping the bid, Kurzius told shareholders last month that McCormick would continue looking for both large and small acquisitions that would help expand products and increase scale in existing markets.
The Botanical acquisition is consistent with the way McCormick has traditionally grown in that it extends the company's business in spices or related products in a growing segment of the market, said Karyl Leggio, a finance professor at Loyola University Maryland.
Last year, McCormick purchased Brand Aromatics, a privately held New Jersey-based maker of marinades and broths, for about $63 million in cash, and Italian spice maker Drogheria & Alimentari for $97 million. Most recently, it bought the Texas-based maker of Stubb's barbecue sauces for $100 million.
With this latest move, "they bought a good brand and will maintain the brand name and extend the reach of the market," Leggio said.
Founded in 1999, Botanical Food employs about 200 people and has a manufacturing facility in Queensland, Australia.
Due to acquisition costs, McCormick doesn't expect the deal to contribute to earnings until 2017. McCormick plans to boost sales of Gourmet Garden by investing in brand marketing and expanding the products' global distribution.
"It's a really good addition for them," said Brian Yarbrough, a consumer analyst with Edward Jones. "I feel like it helps them in the perimeter of the grocery store. There's a big opportunity for McCormick on that side."
Though Botanical's sales are just a fraction of McCormick's sales, "there's an opportunity to grow to a larger size ... and they can use their distribution network," Yarbrough said.
McCormick's sales have been growing slowly — by 2 percent in the most recent quarter — but the company hopes to see growth accelerate as more people cook at home, try international cuisine and use spices and herbs to cook healthier meals
Adding Gourmet Garden to the lineup of brands will be a good fit in light of such trends, Leggio said.
"It's not a new spice [category] but it's a new method of delivery and given the preference for fresh and convenient, it makes good sense," Leggio said. "You look at the growth of Blue Apron and companies with prepared foods. You can have fresh spices in a more convenient way."
The Botanical acquisition also makes sense at a time when McCormick has focused on meeting demand for organic products, said R. Bentley Offutt, an analyst with Offutt Securities in Cockeysville.
"That's a major selling point," for consumers, he said, noting that company officials spent time at the March shareholders meeting touting a new line of dried herb grinders it plans to introduce this year.
Gourmet Garden moves McCormick in a new, yet related, direction, Offutt said.
"The difference is that this product lasts a lot longer than fresh herbs," he said. "That offers a huge opportunity for households. It's a pretty smart idea."