McCormick Announces Second Major Acquisition Of 2020: What Investors Need To Know

Food and spice company McCormick & Company, Incorporated MKC announced Wednesday the acquisition of Fona International for $710 million.

What Happened: Fona is a maker of clean and natural flavors for use in bakery, cereal, dairy, desserts, chocolate and many other product lines.

Fona was founded more than three decades ago and has evolved to become a major independent manufacturer of flavors. The company recorded around $114 million in annual sales and is expected to grow at a mid-to-high-single-digit rate under McCormick's umbrella.

Wednesday's acquisition marks McCormick's second notable purchase of 2020. In late November, McCormick acquired the iconic hot sauce brand Cholula for $800 million.

Related Link: McCormick Spices Up Business With Hot Sauce Acquisition

Why It's Important: McCormick named five reasons the acquisition is expected to drive long-term value for shareholders:

1. McCormick will broaden its product offering through Fona's diverse portfolio, which is highly complementary to its existing lineup.

2. McCormick will expand its technology platform by gaining access to Fona's research and development team and new encapsulation methods.

3. McCormick enhances its "better-for-you" flavor development business.

4. McCormick bolsters its access to mid-tier customers and can reach a broader customer base and expand existing customer relationships through new cross-selling opportunities.

5. McCormick expects the deal to be accretive to its gross margins and accretive to earnings per share in 2022.

What's Next: McCormick will finance the transaction through cash and commercial paper. The deal will expand its net-debt-to-adjusted EBITDA ratio, but management plans on paying down it's via cash flow generation to maintain a strong investment-grade credit rating.

The acquisition isn't expected to result in any changes to McCormick's dividend policy.