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L Catterton to buy Jose Cuervo-backed hot sauce brand Cholula

By Joshua Franklin

NEW YORK, Dec 11 (Reuters) - Buyout firm L Catterton said on Tuesday it has agreed to acquire Cholula, a privately held hot sauce producer whose investors include Mexican tequila producer Jose Cuervo, in a bet that zesty condiments will continue to become more popular with U.S. consumers.

U.S. sales of hot sauces are at an all-time high, led by millennials and a growing Latino population. Named after the Mexican city in Puebla and distinguished by the wooden knob-cap on its bottles, Cholula has become a fixture at many fast casual and Mexican restaurants in the United States.

"Cholula represents a compelling opportunity to invest in a premium brand with an established reputation for quality and authenticity in the growing hot sauce category," L Catterton Global Co-Chief Executive Scott Dahnke said in a statement.

Terms of the deal were not disclosed.

L Catterton sees an opportunity to continue expanding Cholula sales in North America and international markets such as Britain, Australia and Germany, a source familiar with the deal said.

The U.S. seasoning, sauce and condiment production industry is projected to reach $23 billion by 2023, with hot sauces a key driver, according to market research firm IBISWorld.

The U.S. hot sauce market has grown by an average of over 4 percent over the past five years, with IBISWorld estimating $2 billion in revenues for 2018. Growth has come as some consumers are shying away from condiments considered less healthy such as mayonnaise.

U.S. spices maker McCormick & Co Inc last year paid $4.2 billion for Reckitt Benckiser Group's North American food business, which included the top-selling U.S. hot sauce brand, Frank's RedHot sauce.

L Catterton, which made the investment through its flagship buyout fund and L Catterton Latin America, has over $15 billion in capital.

The consumer-focused firm has invested in brands such as upscale fitness club chain Equinox and women's activewear brand Sweaty Betty.

It was advised on the Cholula deal by Kirkland & Ellis, Creel, McKinsey & Company, PwC, and Alvarez & Marsal.

(Reporting by Joshua Franklin in New York; Additional reporting by Nick Brown in New York; Editing by Richard Chang)

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