Morning, everyone. This is Casey Jenkins, Vice President of Investor Relations. Thank you for joining us on this morning's call to discuss McCormick's agreement to acquire Reckitt Bangkieser's food division, RB Foods. To accompany our comments this morning, we have posted a presentation on our website, ir.mccormick.com, as well as the press release and the fact sheet we issued last evening. At this time, all participants are in a listen only mode.
Following our remarks, we will begin a question and answer session. With me on the call this morning are Lawrence Kurzius, Chairman, President and CEO and Mike Smith, Executive Vice President and CFO. During our remarks, we will refer to non GAAP financial measures. These include adjusted EBITDA, adjusted EPS and our leverage ratio. Please refer to Slide 13 for a more detailed discussion of these non GAAP financial measures.
As a reminder, today's presentation contains projections and other forward looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward looking statements whether as a result of new information, future events or other factors. As seen on Slide 2, our forward looking statement also provides information on risk factors that could affect our financial results. It is now my pleasure to turn the discussion over to Lawrence, who will begin on Slide 3 of the presentation.
Thank you, Casey. Good morning, everyone, and thank you for joining us. I am extremely pleased to announce that McCormick is strengthening our global flavor leadership with the acquisition of RB Foods. As you know, at McCormick, we are intensely focused on bringing the joy of flavor to our consumers worldwide. This acquisition advances that vision as we continue to differentiate McCormick through industry leading growth.
RB Foods is a leader in the attractive and growing condiments market with iconic flavor brands, including French's, Frank's Red Hot and Cattleman. Their focus on creating products with simple high quality ingredients makes them a perfect match for McCormick as we continue to capitalize on the growing consumer interest in healthy flavorful eating. We're excited by the addition of these beloved brands to our existing global portfolio, providing us with an even greater opportunity to demonstrate our passion for flavor and to create shareholder value over the long term. As you can see on Page 4, we will acquire RB Foods for $4,200,000,000 in cash. McCormick estimates that RB Foods' 2017 revenue will be $581,000,000 with an adjusted EBITDA of $215,000,000 The combined pro form a net sales are expected to be $5,000,000,000 with significant margin accretion.
The addition of Frank's Red Hot Hot Sauce, the clear consumer favorite in an attractive and high growth category, French's mustard and other beloved products enables McCormick to become a one stop shop for condiment, spice and seasoning needs, providing our customers and consumers with an even more diverse and complete flavor product offering. These market leading products, together with RB Foods' dedicated state of the art manufacturing facility, are a strong complementary fit. The transaction will immediately advance McCormick from number 10 to a leading position in U. S. Condiments.
French's and Frank's Red Hot will be the number 2 and number 3 brands in our global portfolio, respectively. Let me tell you a bit more about these iconic flavor brands that hold leading market share positions in advantaged categories. Frank's Red Hot and French's Mustard are both number one brands in the U. S. And Canada.
Frank's Red Hot maintains a passionate consumer following, while French's mustard has been delivering classic flavor for generations. French's crispy vegetable is the number 2 selling food item during Thanksgiving week, and Cattleman's barbecue sauce has earned a leading market position in the branded U. S. Foodservice channel. At our most recent Investor Day on April 4, we discussed our acquisition agenda and our growth strategies, both influenced by current trends focused on the importance of taste, more real food, natural ingredients and healthy eating and most importantly, flavor.
The acquired product portfolio has both flavor and health attributes and is a meaningful step as we continue to execute our strategy. 1st, it fits in our bigger, broader acquisition agenda. This transaction adds significant scale in key market categories and channels with the addition of market leading brands. It also drives growth in a flavor category where we have been successful globally and continue to focus on sauces, condiments and marinade. Our global footprint, combined with these successful but largely domestic products, creates a strong growth opportunity.
2nd, it is another example of McCormick growing with flavorful healthy offerings. With Frank's Red Hot, we will address a rapidly growing and on trend flavor category. All of these products have simple, high quality ingredients and are moving towards better for you flavors and healthy products that fit perfectly within our tasty trust portfolio. The combination of flavor and health has been a driver of McCormick's success with millennial, and these products are no different. 3rd, it drives growth across both of our segments.
This transaction increases our industrial segment sales in the U. S. And Canada in the branded foodservice channel by over 50%, and we will further leverage complementary distributor relationships. In our consumer segment, we have growth opportunities through a full product portfolio offering. For example, we expect to leverage our seasonal holiday promotions and grilling events to include French's, Frank's, Red Hot and McCormick branded products.
And importantly, we have a proven track record integrating brands. We believe that we're well positioned to integrate this transaction quickly, efficiently and effectively. Now let's talk a bit more about each brand starting on Page 7. McCormick already has an advantaged flavor portfolio with leading on trend brands, and we're adding another. Frank's Red Hot is the clear leader in the advantaged hot sauce category with exceptional sales growth that is outpacing underlying category growth.
Similar to our core Urban Spice portfolio, consumer data shows that millennials over index their purchases of hot sauce. And unlike the cult like following of our Old Bay brand, Frank's Red Hot enthusiasts are deeply passionate about the brand. Frank's Red Hot and its saucy spokesperson, Ethel, are definitely helping save the world from boring food. With French's mustard, we are adding a product that is classic Americana. It has a strong heritage of over 100 years and has remained a market leader through innovation, including not just the classic yellow mustard, but also a wide range of flavors with a pipeline of new products and formats.
French's ketchup is differentiated as a better for you option as its healthy qualities are a driver for over indexing with millennials, and French's crispy vegetables are a holiday tradition made with real fresh vegetables and certified sustainable palm oil. It is a key ingredient in the most Googled recipe of 2016, and we believe that we have an opportunity to expand the breadth of the portfolio through innovation and to drive consumption beyond the holiday season. In addition to retail, RB Foods brands have attractive positions across hot sauce, mustard, crispy vegetable and barbecue sauce sold through the U. S. And Canada foodservice channels.
We expect these products to build upon McCormick's Industrial segment growth and increase our scale in the U. S. And Canada branded foodservice channels by over 50%. We also anticipate meaningful synergies between French's, Frank's Red Hot and McCormick products in fast casual and other channels. We believe these brands are ideal additions to McCormick's tabletop offering and its established product.
Another area where we see great opportunity is in our ability to leverage our international infrastructure, which already includes condiment consumer insight, sales and supply chain expertise to significantly expand the global presence of Frank's Red Hot and French's in both retail and foodservice channels. We expect this to result in both substantial growth and household penetration. We plan to make Frank's the number one hot sauce globally. With that, I will now turn the call over to Mike to talk
a bit more about what we see as the financial impact for McCormick. Mike? Thanks, Lawrence, and good morning, everyone. I will now take you through an overview of the key financial highlights of the transaction, which you can find on Slide 11. Overall, we are very excited about this asset as it supports our focus on long term growth, both at the top line and bottom line.
As Lawrence mentioned, McCormick is paying $4,200,000,000 in cash for RB Foods, represents an approximate multiple of 19.6x adjusted EBITDA, with the post synergy multiple of roughly 15.9x. We anticipate sales growth from this acquisition to be in line with our long term guidance of 4% to 6% as we build upon RB Foods' successful track record of growth. These assets also have a very attractive adjusted EBITDA margin, which will significantly increase our margins. Those of you who remember our acquisition of Lowery's, which until today was the largest deal in our history, will recall a favorable impact to our margins, and we expect similar results from this acquisition going forward. We also expect the transaction to be accretive to McCormick's adjusted EPS in year 1, with an increase of approximately 5%, excluding integration and transaction costs as well as ongoing amortization costs.
We expect this accretion to increase to approximately 10% once the synergies are fully realized. McCormick expects to achieve cost synergies of approximately $50,000,000 the majority of which will be realized by 2020. With anticipated synergies in sourcing and procurement, supply chain and manufacturing and selling, general and administrative expenses. We will utilize our comprehensive continuous improvement program, CCI, to ensure we achieve these synergies. We expect to incur approximately $140,000,000 of transaction and integration costs, with majority to be incurred in 2017.
This will include noncash charges related to purchase accounting. We also expect to incur increased annual amortization in the $20,000,000 to $25,000,000 range. Finally, in terms of our capital structure, McCormick permanent financing of the transaction to consist of approximately $3,700,000,000 of new debt, including prepayable term loans and notes and $500,000,000 in equity. Following the acquisition, McCormick will have a pre synergies leverage ratio of 4.9x, and we expect to delever to approximately 3x by the end of fiscal 2020, in part due to our anticipated strong cash flow generation. I want to emphasize that McCormick is committed to a strong investment grade rating.
While we anticipate a temporary reduction in our credit rating, we plan to return to our current credit profile over time. As part of this commitment, McCormick will curtail its share repurchase program and will utilize our expected strong cash flow to pay down prepayable debt. Importantly, we will also maintain our dividend policy. The transaction's impact on McCormick's financial results for the current fiscal year will depend on the actual closing date, which we expect in the 3rd or 4th quarter. After closing, we plan to update you on the estimated impact of fiscal 2017.
Finally, with pro form a 2017 annual net sales of $5,000,000,000 and pro form a adjusted EBITDA of $1,000,000,000 McCormick is building scale, which will help us drive faster growth, increase margins and generate increased cash, allowing us to create additional shareholder value over the long term. This completes my remarks. Let me turn it back to Lawrence for some closing comments.
Thank you, Mike. As Mike said, we believe this combination of powerful flavor brands will drive significant shareholder value. It reinforces our focus on growth with the addition of iconic brands with leading market shares and provides further international and food service opportunities. It enhances McCormick's scale and will generate meaningful margin and earnings accretion. McCormick is a global leader in flavor, a growing and advantaged business platform.
We continue to capitalize on the global and growing interest in healthy flavorful eating and in the source and quality of ingredients. The acquisition of RB Foods is a great strategic fit for McCormick and further establishes our flavor leadership. That completes my remarks. So now let's turn to your questions.
Thank you. We'll now be conducting a question and answer Thank you. Our first question comes from the line of Andrew Lazar with Barclays.
Just two questions for me, if I could. I guess the first one would be maybe a little bit higher level. Of late, we've seen the overall industry multiple get a bit pressured by investors' concerns over a lot of the things that we've all talked about, whether it be changes at retail, concerns of pricing pressure, broader industry consumption trends, things like that. And obviously, this asset sort of for you doubles down pretty significantly on that center store part of the store. And you just went through obviously all of the compelling reasons for McCormick of these assets and for doing this deal.
But I guess, first, I'm just trying to get your maybe broader perspective on how those two things sort of match up a little bit, if you will?
Sure, Andrew. This is Lawrence. Well, first of all, this is an asset that we had previously identified as being of tremendous strategic importance. I would say that over the last decade, whenever we've looked at big ideas, this opportunity to acquire RB Foods was really at the very near the at or at either at or very near the top of the list. These are important flavor brands and a tremendous strategic fit.
One of the advantages that we've got in the center of store, of course, is that herbs,
spices and seasonings continue to be
a growing category and consumer demand for flavor continues to be very strong. As a portfolio, these brands that we're acquiring show a similar characteristic. The organic growth rate of these brands is comparable to ours. But when you dissect it into pieces, the real driver has been the hot sauce business. Hot sauce category is actually growing faster than herbs and spices and is another advantage category, but we see it as really almost like a liquid spice that consumers use in many different ways.
The consumption has been quite strong as a category. And really, Frank's has been the brand that has driven it. I don't think we provided a breakdown, but within this portfolio, the Frank's Red Hot Sauce business is actually the largest piece of the business. It's quite a bit bigger than mustard. So mustard, crispy vegetables, relatively flat categories, but the hot sauce category and the Frank's Red Hot brand in particular really drive the growth of the whole portfolio.
So overall, it's not dilutive to our growth at all, and we just see a lot of continued runway for growth there.
Got it. That's very helpful. Thanks for that. And then the very last one would just be, it's a carve out, obviously, with very healthy margin structure. So it's certainly a healthy level of synergy.
I so a certainly healthy level of synergy. I guess I'm trying to also sort of match those up a little bit. Maybe you can be a little more specific about where some of the bigger opportunities around Synergy are, even it's already seemingly a very well run and certainly very profitable business? Thanks so much.
Andrew, this is Mike. I'll take that one. Yes, I'd point you back to our Lowery's acquisition a few years ago, and that's where we're buying a nice brand that was from Unilever at that time. We brought it into our business. There are a lot of opportunities from a CCI perspective we found right away.
And a good example for example might be where if you ship spices and herbs, we might cube out on freight in our trucks versus wait out. We brought in Lowery's, we found we could match up the shipping and save a lot of money that way freight and distribution. So that's one example. But I think if you look at this business overall, there's a lot of similarities to Lowry's back in 2,008, 2,009. And if you look at the margin accretion we got from that, some of which was driven by the synergies we harvested back then, I think you'll see similar opportunities with this one.
Thank you.
The next question is from the line of Alexia Howard with Bernstein. Please proceed with your question.
Good morning, everyone.
Good morning, Alexia.
Hi. So, two quick questions. On the financial side, we're struggling to get to the 5% accretion in year 1 if you're levering up to 4.9x. Are you able to tell us what average interest rate you're anticipating on the incremental debt? Or is it because you anticipate cost savings?
And should we think about that 5% as basically being fiscal 2018 for you guys? And then the follow-up question is what overseas markets do you see as the biggest opportunity for the month for this business? And how could the geographic mix evolve over time? Because at the moment, it's a very U. S.-centric business.
Thank you.
Yes. Hey, Alexia. I think in the 3.5% to 3.75% range for interest rates. As far as the timing perspective and we're taking out for you all the integration costs, all the financing costs and the amortization costs that we estimate right now. Of course, we'll have better estimates when we close, but and we'll give you a little more guidance on 2018 at that point, But hopefully, that helps you kind of fill out your template.
And as for the overseas markets, the you're right, it's today, it's predominantly a North American business. The brands are you mentioned U. S, but it's also quite a strong brand in Canada as well, quite a strong set of brands in Canada as well. Today, the brands are sold in about 30 countries outside of North America. But this has been a food asset trapped inside a non food company.
And so they haven't had access to the international network and international resources of their parent. For us, this is going to be a core business, and we're going to treat it accordingly. We have tremendous infrastructure, as you know, outside of the Americas, about 40% of our total business is outside of the Americas. And so we believe that we can drive these brands through that infrastructure. That infrastructure of course, sales organization and route to market and also includes substantial manufacturing assets in both Europe and in Asia, where we are already a leader in the condiments market in a number of countries.
So I think it's going to fit in very well. Currently, some of the strong countries that where the brand stronger countries for the brand include Mexico and U. K, both of which are very strong markets for us. And I would certainly see us building on that, but expanding well beyond it pretty quickly. It's a little bit early not having ownership of it to get too specific about that.
But again, we see the strong opportunity. Also go say that it's not just a retail opportunity. So a lot of our strength in the international world is in our industrial segment, which includes branded foodservice product. And we see a strong potential for these brands in branded foodservice, particularly throughout Asia. A great deal of our foodservice strength is in selling Western style condiments to upscale restaurants, international restaurant customers and international hospitality, entertainment and hotel customers who want the American brands for tabletop as a quality mark in their markets.
And again, we think that these fit right into that. Right now, under the current ownership, these brands don't have access to that We think it's a great growth opportunity for
us. Great. Thank you very much. I'll pass it on.
Our next question is from the line of Rob Dickerson with Deutsche Bank. Please proceed with your questions.
Okay, great. Thanks. I just had one broad question and specific question. The broad one was just on valuation. This is a pre synergies.
Obviously, this is I think you said close to 20 times EBITDA. Given the margin profile, growth profile of the business, it may not seem that rich relative to some transactions we've seen recently over the past few years. But just trying to gauge what your thought process was when I'm assuming you outbid other interested parties for the asset and just trying to gauge kind of what your thought process was when you essentially were able or willing to pay, let's say, a slightly higher price than other parties? Was this essentially just driven by the international infrastructure and the scale that you already have within kind of the grilling space in the U. S.
Or you just felt like the margin profile essentially is strong enough in the growth profile that if the math works then 20 times EBITDA makes sense?
Rob, I'll start and then I'll let Mike comment on it. You almost answered the question yourself there in asking it. First of all, the asset is incredibly strategic to us. And so we really wanted it and we were willing to step up to stretch for it a little bit. The process was quite competitive as we just as we saw the value in this business, so did others.
And so there was a market discovery process that established a market price for this asset. With all that said, we did not give up our financial discipline. And so when we look at the business at the multiple it is and compare it to comparable company transactions, when you consider the growth characteristics of the business and the margin structure of it, we saw a great opportunity to create shareholder value, including this in the McCormick portfolio. There are just ways that we have to continue to drive that growth and driving the growth on the on those that strong margin structure really does create a lot of value.
Okay, great. And then
Hold on. Mike, this transaction because you're going after long strategic long term shareholder value. I mean, we look at every one of our investments with an EVA lens. And the beauty of this investment, I mean, when you look at the ROIC versus the cost of capital with that sales growth we see in the mid single digits with highly accretive margins, that's the P and L side of it we like. But also from the balance sheet side of things, it's an extremely efficient cash conversion cycle from a working capital perspective and also from a capital usage perspective, generally a little less than we are from a capital asset perspective.
So this thing throws off a lot of cash and really drives solid EBITA growth for us.
Rob, one other thing. As we think about synergies as well, I think that we saw synergies that others who were competing for the asset didn't and that create value for us that they may not have had. We are strong in both retail and in foodservice. We're strong in both North America and internationally. So all of those are opportunities for us to grow.
The supplier base for these assets overlaps tremendously with our existing supplier base. And so there are synergy opportunities there from the added scale. We've had an awful lot to like about the asset that justified the price.
Okay, great. And then just very quickly, in this synergy reinvestment, very broadly is the expectation that you likely will reinvest some, a lot, all or you don't really see that much need for incremental investment the brand, let's say, for the U. S. Because like Frank's is already strong? Thanks.
Well, I'll say first, so I'm going to let Mike talk about the reinvestment. But I will say that although these were not core businesses for their parent for under the current ownership, they were not orphan brands either. These were supported, well marketed brands, strong marketing budgets in the North American area. And so we don't see a big need for incremental spending. I think we can bring a lot of thought contribution to this.
There are areas where we have tremendous expertise like in digital, social and mobile marketing, where the brand might be underinvested. But there's really not a need for heavy investment on that.
Our next question is from the line of Ken Goldman with JPMorgan. Please proceed with your question.
Good morning. It's Tom Palmer on for Ken Goldman. Thanks for taking my question. Had a question on the accretion figure. Going forward, are you going to guide to and report using adjusted EPS that excludes purchase accounting and amortization?
Or was the comment about accretion mainly to highlight the cash accretion of the deal?
Yes. We're giving you the pieces of it. We're not going
to change and guide to like a cash EPS, similar in the past where we've kind of called out some of the big items for you. Amortization, for example, of $20,000,000 to $25,000,000 it's a big item. So we just want to give you the tools, but we're going to retain our current policy of the disclosure.
Okay. Thank you.
A quick follow-up. In the prepared remarks, I think Mike mentioned the synergies in the context of the CCI program. I just wanted to clarify the $50,000,000 in synergies is incremental to the $400,000,000 plan that you had over 4 years?
Yes. I would make that assumption that this acquisition that is newly found CCI.
Okay. Thank you.
Our next question comes from the line of David Driscoll with Citi. Please proceed with your question.
Great. Thank you and good morning.
Good morning, David.
I wanted to ask a little bit about the revenue synergies and two parts to this question. The first question on revenue and revenue synergies is that, is that embedded in the 10% accretion goal or is that accretion goal of the business as it is today inclusive of the $50,000,000 in cost synergies? That's the first one. And the second question on revenue synergies, and I apologize if I missed this, but is there a sense of what this business could be outside the United States over the forecast horizon of your year 3 accretion goal in terms of the revenue synergies? Thank you.
David, the first part of your question was really great. It was hard to hear. Could you just repeat the first question again? Sorry.
Yes, simple. On the year 3 accretion, you've got 10%. Does that include revenue synergies? And then the second part is just on revenue synergies specifically, how big can the revenue synergies get over the course of time by year 3 if we want to just pick some particular year so we get a sense as to what you guys are thinking the opportunity is outside of the United States? Thank you.
Okay. Yes, the 10% accretion would include those revenue synergies that we
see that we've built into the model, yes. Yes. No, I would also say just on the revenues, I mean, we expect to grow this business at a pace that's really comparable to historic growth rate overall. And so I want to be careful about overbaking the revenue synergies. We've got a lot of confidence that we can continue to drive the growth this business has enjoyed.
It's been really well run and well managed by the current team, and we're confident that we can continue the growth trajectory that it's been on. I would say that we can add the international growth is an area that we can accelerate. They've had good percentage growth on a very small base, and we think we can continue that percentage growth as that base gets bigger. I hate to put an absolute number on it, but we're pretty we're expecting to get double digit international growth.
Thank you.
Our next question is from the line of Steven Strycula with UBS. Please proceed with your question.
Good morning. Can you hear me?
Yes. Good morning.
Great. I'm not sure if Brendan Foley is on the line, but would love to hear either Laurence or Brendan's thoughts given his experience at Heinz as to what he thinks about the condiment business specifically and what branches could mean in terms of other categories, whether it's broader distribution and catch up, both in the U. S. Or broad and other condiments? Thanks.
Sure. Well, Brendan is not on the call, but I'll take the question. We have a lot of condiment expertise, and we have quite a lot of condiment experts, including a pretty large slate of alumni of the company that you just mentioned. We are pretty optimistic that there's a great growth opportunity for us. In the base business, we see an opportunity, particularly on Frank's, to continue to build distribution, household penetration and to drive market share on French's.
We believe there are innovation opportunities. And both of these two brands, we see a strong opportunity to further build out the foodservice business on the domestic side. And I think we've already commented on the international. Mike, do you want to
I'm sure Brendan is very excited about this acquisition. Great.
And then a quick follow-up question. Related to the synergies question that Andrew was asking, just to peel back the onion a little bit more on how we get to the $50,000,000 is my understanding was that there was like one production facility for the Condiments business, were there more than 1? It seems like it was a straightforward supply chain, but was there any outsourced co packing or maybe there's some margin arbitrage from in sourcing production versus you can kind of capture that nice gross margin spread. Is that an element of it? Or I'm just trying to understand the $50,000,000 a little bit better.
Yes, yes. That is an element of it. We as you know, we produce condiments already in the U. S. And North America.
So they currently have some co packers of some of their business too. So just similar to the Stuvs acquisition or the Lawrie's acquisition, over time, we would most likely in source that.
Okay. Thank you.
Our next question is from the line of Brett Hundley with Vertical Group. Please proceed with your question.
Hey, thanks. Good morning, guys.
Good morning.
My first question is just I'm backing into a breakdown of maybe like 25% to 30% industrial mix for you guys and the remainder retail for this business. Am I
in the right ballpark there? I think that we even included that information in what we sent out. I think the acquired brands about 35% is foodservice. Yes.
Okay. And then just I wanted to just revisit the cost synergy discussion once more and just see if you guys could give us any type of additional color on timetable. I mean, you talked about the majority being in place by 2020, I think you said. But are you able at this point to kind of cut down those years and talk about where we can see a large percentage in 1 year versus the other?
Well, I
mean, we said most of it will be by 2020. So that's a pretty big percentage of the 50%. I mean, obviously, when you have to in source production, for example, that's take a little bit of time, and we have to close this close on the business, too. So again, 2020, once we close it, it's only 2 years away. So if you start it off, you can ramp it up as you see fit to get to most of the $50,000,000 by 2020.
Okay. And then just my last question. I just want to be clear on something. So maybe I'm reading too much into your $5,000,000,000 pro form a number. But when I look at where kind of what your guidance is, where consensus is on the top line and the sales number that you give for the RB Foods business, it kind of implies to me a drawdown in your legacy McCormick business for the year.
And I just want to get clarity from you on that and make sure I'm not reading too much into this.
Yes, you're reading that's a good point actually. 5 and 1 have a nice ring to it, something like 5.21.1, not so much. So we were going after the big numbers similar to Investor Day when we highlighted our 2019 algorithm.
So We're not signaling any change to the guidance on the underlying business.
Our next question is from the line of Robert Moskow with Credit Suisse. Please proceed with your question.
Hi, thanks for the question.
Hi, Rob.
Hi. When I thought about the RV Food business, what always amazed me was that how a non core business for Reckitt could generate that type of growth over the past few years. And as you analyzed it, did you think through whether it was benefiting from anything in the competitive environment that maybe, I don't know, Hines had pulled back in some areas that had allowed BREC it to accelerate? And for and kind of following on that, did Wreck It grow at a pace that was above its normal rate? And then maybe you guys can come in and keep that going because of the resources you can provide.
I wonder what your thought on that.
Hey, Rob, that's great. I'm glad to give some color on that. And first of all, I'm going to say these are great brands. I know there have been some comments that they're legacy brands. These are classic iconic brands.
The French's brand is like pure Americana. But these brands have generated solid mid single digit growth going back for more than 20 years. And so there's a long, long track record of steady growth of the brands and increasing consumer popularity of the brands. And again, particularly Frank's Hot Sauce with the introduction of the advertising campaign featuring the Ethel character in 2,009 really has taken off and has been a big driver of the recent growth since big driver of our future plans. They have not benefited from any lack of competition and in fact have had a very strong competitive headwind over the last 3 years from the introduction of the Heinz mustard product into retail, which has been a drag on their performance that they've had to overcome.
And so there hasn't been any kind of extraordinary circumstance that's given them a benefit. If anything, they've had some extraordinary challenges during the recent years. Again, we just think under our ownership where it's a core business rather than a non core, that it's going to get that benefit will that business will reap a lot of benefit from a home and a food company.
Lawrence, I thought I had heard in foodservice that Kraft Heinz had kind of pulled back a little bit in terms of the resources they gave. And I kind of jumped to the conclusion that maybe French's had benefited from that with more distribution. Yes. Did you find that?
Yes. On the foodservice side, actually French's is not that big. Although, we said that 35% of the business is foodservice. It's actually the majority of that is actually hot sauce, not French's mustard. That's a stronger piece of it.
We think there's a big opportunity there. Again, these are great brands, both in retail and in foodservice. There's a great synergy between retail and foodservice. And we think there's a great opportunity for us to drive that growth.
Great. Thank you.
Our next question is from the line of Jonathan Feeney with Consumer Edge Research. Please proceed with your question.
Good morning. Thanks very much for the question. Two questions really related. First, I always thought of you in this category, particularly one day that Tabasco brand would ever sell. So congratulations, I think strategically on getting into it.
But could you talk about the competitive landscape because the low end of this category is very crowded. The barriers for entry don't mechanically, wet fill businesses don't seem to be that high and you can see a bazillion different sauces, regional, local, etcetera in there. What is it that makes the Frank's brand special in your mind? And can you give us any color? I presume it wasn't your intention to disclose the gross margin.
Can you give us a flavor for where that gross margin index is versus the rest of your company on frac specifically? Thank you very much.
Jonathan, are you messing with us
with that joke about the flavor for the margin?
I don't even know it.
The hot sauce is a very fragmented category. There are thousands of brands and there's a steady flow of brands in and out. But the leading brands are pretty well established. And Frank's is overwhelmingly the leader in hot sauce, has a very strong development in the East. But there are regional competitors that are strong, and there's a great opportunity for us to grow, Particularly on the West Coast and the South Central region, there are some regional competitors and there's a lot of opportunity for us to grow.
The product tastes great, has tremendous engagement with the millennials, much like our I think we mentioned in our remarks, much like the Old Bay brand, the followers are quite passionate. The product repeats very well after trial. People who try it really like it. And the taste profile of it is they all have a little bit of a different taste profile. And the Frank's taste profile is one that consumers get hooked on.
You want to Yes,
this is really it's actually a very high usage product too. You can pour a lot of this stuff on. It doesn't have the heat context of some of the other brands where you can only use a little. So it's a high repeat usage. To your second question about margins, these margins are very comparable to our spice and seasonings lines.
And actually, as Lawrence mentioned, I mean, the high growth part Gross margin. Gross margin. Yes, gross margin. But the high growth hot sauce business has higher gross margins than the rest of the portfolio. So that helps us margin up going forward.
Thank you. Yes.
Thank you. We have time for one more additional question today, which is coming from the line of Akshay Jagdale with Jefferies. Please proceed with your question.
Good morning. Thank you and congratulations on the deal. You've provided a lot of detail, so thank you for that. I just wanted to ask, maybe I missed this, but what is the historical growth profile of the business? You gave some flavor, but are you able to give us like a 3, 5 year CAGR?
I can tell you that over 20 years, it has been mid single digit and I believe that virtually every time frame that we looked at, we found that 4% to 5% over just about any cut of that time period.
Outstanding. And just one last one. To your credit, you're probably one of the only companies that talks and focuses on EVA. So just do you expect this deal to be EVA positive at some point? Because I mean, obviously, you're spending $4,000,000,000 I'm guessing the you could say the cost of the deal including equity is 5%, 6%.
But I know you take a more holistic view at it, but can this deal be EVA positive given the multiple you're paying?
Definitely. That's why I threw out in an earlier question. I wanted
to get EVA into there because as
I said, we look at all of our investments, whether capital or M and A with an EVA lens. And if you look at the metrics here, bringing in both the P and L and the balance sheet, this does generate EVA for the company. So yes.
Perfect. I'll stop there. Thanks a lot.
Thank you. I will now turn the floor back to Lawrence Kurzius for closing remarks.
Thanks, everyone, for your questions and for participating on today's call. I know that we will have calls scheduled with many of you later this morning. In closing, I'd like to recognize and thank the employees who worked so hard to complete this transaction. It's an important milestone for McCormick and another strategic acquisition to drive our growth. We have great respect for RB Foods and the strong business its employees have built.
We expect to grow these brands in new and unique ways through our proven track record of insight driven innovation and the ability to leverage our global footprint. We're confident McCormick is the perfect home for RB's popular food brands and its employees.
Thank you, Lawrence, and thank you all for joining us today. If you have any further question regarding today's information, please give us a call at 410-771-7140. This concludes this morning's conference call.