The news: Unilever will combine its food business with McCormick, bringing iconic brands like Hellmann’s, Knorr, Cholula, and French’s under one corporate umbrella.

The new entity—which will retain the McCormick name—is expected to generate roughly $20 billion in annual revenues and will be majority-owned by Unilever and its shareholders. Unilever will also receive a $15.7 billion cash payment, which will be used to offset separation and tax costs, pay down debt, and fund €6 billion ($6.8 billion) in share buybacks over the next four years.

The deal is expected to close in mid-2027, pending shareholder and regulatory approval.

Zoom in: On paper, the merger looks mutually beneficial.

• Absorbing Unilever Foods will turn McCormick into a larger global food player and give it a bigger slice of the fast-growing sauce and condiments category.
• Unilever can focus on higher-growth categories—mainly beauty and personal care—where there are more opportunities for premiumization and less competition from private labels.

However, fully realizing those opportunities will be tricky—particularly for McCormick, which must integrate a much larger organization into its own comparatively lean operations. There is also a debt burden risk: The cash payment to Unilever is more than McCormick’s market capitalization, which could strain the latter’s resources and limit its ability to invest in innovation and other growth initiatives.

Implications: While deals of this scale are not unusual in food, they tend to fall short of expectations. A BNP Paribas analysis of 45 major consumer packaged goods (CPG) deals since 2000 found that roughly half led to significant impairment losses, while the five largest all failed to deliver their promised benefits. Recent cautionary tales include J.M. Smucker’s $5.6 billion acquisition of Hostess—which resulted in nearly $1 billion in impairment charges in the most recent fiscal quarter—as well as Kraft Heinz’s ill-fated merger.

Companies expect megamergers to bring scale and unlock cost synergies, but all too often they create unwieldy organizations that struggle to innovate quickly enough to stay relevant with consumers. That is one reason why large foodmakers are losing share to private labels and insurgent brands, which are more attuned to shoppers’ needs and tastes and can move faster to take advantage of gaps in the market. More than half of US adults (56%) commonly purchase private label grocery and food and beverage products, making it by far the most popular category for trading down, according to a First Insight survey—underscoring that brand name alone does not guarantee reliable sales.

Rather than relying on large deals to shore up sales, food companies—as well as those in other competitive sectors like beauty—would be better served to make smaller, more strategic acquisitions that enhance their appeal to key audience segments and enable them to stay on top of preferences in a fast-moving consumer landscape.