McCormick to buy hot-sauce maker Cholula's parent for $800 million

(Reuters) - Spice maker McCormick & Co Inc said on Tuesday it would buy hot-sauce maker Cholula’s parent from private equity firm L Catterton for $800 million, as it looks to cash in on robust demand for packaged foods during the COVID-19 pandemic.

FILE PHOTO: Cooking spices manufactured by McCormick & Co. are seen in this illustration photo taken in Adelphi, Maryland March 18, 2016. REUTERS/Jim Bourg/File Photo

Several food producers, ranging from plant-based patty maker Beyond Meat Inc to breakfast cereal maker Kellogg Co, have seen a surge in their sales to supermarkets as people cook more at home due to the health crisis.

McCormick, which already owns Frank’s RedHot hot sauce brand, reported an 8% jump in sales in its latest reporting quarter, as higher at-home food consumption outweighed weak sales to its restaurant partners.

Hot sauces have grown in popularity, thanks to the rising popularity of spicier cuisines such as Thai and Szechwan, as well as the pop-culture influence of YouTube shows such as Hot Ones.

Cholula’s annual net sales are about $96 million and are expected to grow in the mid-to high-single digits in a normalized environment beyond the pandemic, McCormick said.

“Hot sauce is an attractive, high-growth category and, as an iconic premium brand, Cholula is outpacing category growth,” McCormick Chief Executive Officer Lawrence Kurzius said.

The deal, likely to be completed by the end of this year, is expected to add to McCormick’s adjusted earnings per share in 2021, the company said.

The Wall Street Journal reported on Monday that McCormick was nearing a deal to buy Cholula.

Analysts have said Cholula is a great fit for McCormick’s portfolio, but they remained cautious as to whether the deal would receive regulatory clearance.

McCormick’s share of the hot sauce category over the last 12 months is 22.1%, while that of Cholula’s was 12.7%, according to data provided by market researcher Nielsen to J.P. Morgan analysts.

Shares of McCormick gained 1.4% on Tuesday.

Reporting by Praveen Paramasivam in Bengaluru; Editing by Aditya Soni and Shailesh Kuber