Natural Foods Merchandiser

Spice giant purchases Asian natural foods brands

Analysts disagree over the value of natural foods brands Thai Kitchen and Simply Asia, but most agree that conventional spice company McCormick & Co. moved into a growing market when it agreed to acquire the two brands earlier this month.

McCormick, the Sparks, Md.-based producer of spices, seasonings and flavors, paid about $97 million for Epicurean International, which develops and markets the Thai Kitchen and Simply Asia brands. The Union City, Calif.-based companies make instant rice and noodle meals, soups and sauces that are distributed in natural and conventional grocery stores, mass merchandisers and club stores.

According to McCormick, Epicurean's annual sales are about $50 million and have grown at a 32 percent compound annual rate since 2002. Epicurean reportedly has a 59 percent market share in the Thai grocery segment.

The purchase price was 11 times Epicurean's 2005 earnings before interest, taxes, depreciation and amortization. Leonard Teitelbaum, an analyst for Merrill Lynch, noted that price "is, in our view, on the high side," but added, "we believe that the acquired brands have significant growth potential."

Scott Van Winkle, managing director of equity research for Canaccord Adams, points out that natural food companies were selling at EBITDA multiples of 16 to 18 five to six years ago, so Epicurean's 11 is "an attractive valuation for a strong-selling company." He predicts growing valuations as "the specialty side [of the natural products industry] becomes mainstream."

McCormick expects the acquisition to immediately add to its earnings, which have suffered recently. The company is in the midst of a three-year restructuring plan that includes dropping unprofitable products, closing plants and cutting up to 1,000 jobs, or 13 percent of its worldwide workforce.

Epicurean Founder and President Seth Jacobsen plans to remain with the company, which has about 50 employees.

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