With just under two-years at the helm, Apollo Global Management and C. Dean Metropoulus & Co are rumored to be at a bidding stage for an estimated $2bn full sell-out of Hostess – an idea that has come as a surprise to many industry onlookers. The packaged cake and pastry brands that could be up for sale include Twinkies, Donnettes and Zingers.
“It was a huge surprise for everyone. It surprised me it was up for sale so quickly, but as soon as private equity companies decide they can turn a profit, they’re all for it,” said Lamine Lahouasnia, head of packaged food research at Euromonitor International, told BakeryandSnacks.com.
Jerry Smiley, partner of business consultancy firm Strategic Growth Partners, agreed: “It shows that the private equity firms believe that they have turned the business around enough to generate a substantial profit on the sale.”
“Most private equity firms like to turn their investments soon. Two years does seem quick, especially for this type of turnaround, however, with the performance that they have achieved, you can’t blame them,” he added.
Take over rumors were first published in the New York Post.
Smiley said Flowers and Bimbo would be “the most natural strategic buyers”, although noted that both firms launched items very similar to Hostess products during the bankruptcy and shutdown saga.
Lahouasnia disagreed, suggesting it would be too much of a diversion from the companies' core bread market.
“Both Bimbo and Flowers Foods are primarily centered on bread rather than cakes and pastries, and a lot of what they’ve been doing has also confirmed that’s the area they’re committed to. Bimbo acquired Canada Bread and Saputo, for example, and obviously they went and bought six or seven brands from Hostess. Also, a lot of its product innovation has really been centered on healthier breads.
“It would strike me as a little schizophrenic to on one side chase that health dream and on the other side buy Twinkies, which is the dictionary opposite to healthy,” he said.
Flowers Food had a similar story in terms of bread focus, he said, although would be a better fit than Bimbo, as it wasn’t so focused on the health aspect. “It may suit [Flowers] a little better to have more of a broader portfolio in cakes and pastries as well.”
However, if it did go to Bimbo or Flowers, Lahouasnia said the packaged cake market would change drastically – catapulting the buyer into the top spot in the category.
“Certainly the cake market could see some fairly significant changes for the US, and that makes it a very interesting proposition either for Bimbo or Flowers Foods,” he said.
Lahouasnia said the most likely candidate among the rumored bidders would be Swiss specialist bakery firm Aryzta. “For me, that’s the most interesting one,” he said.
“Their business model was primarily centered on supplying bread and baked goods to food service and retail in an unbranded fashion. Chances are the croissant you might buy from Walmart is a product that was manufactured by Aryzta, sold in frozen format and baked off in-store. While they weren’t involved in any of the initial acquisition discussions (in 2012), recently they’ve turned more towards a consumer-facing strategy.”
If technology allowed, he said Aryzta could take Twinkies and DingDongs into in-store, fresh bakery sections by developing bake-off variants.
“My initial thoughts would be Aryzta would be the best-placed company to benefit from those brands, from a product perspective and overall geographic and retail strategy.”
However, Smiley said the Hostess Brands was too different to Aryzta’s current business model. He also suggested recent financial struggles could hinder the company’s chances.
Aryzta shares slumped this week to the lowest they’ve been in years, predominantly over fears surrounding European sales and third-quarter revenues that missed estimates.
Brand to brand
Lahouasnia said, whatever the outcome, if Hostess Brands was sold it would likely be to another branded player because private equity firms will be priced out of the market.
“If this rumor is indeed true, Hostess will probably go for a lot higher than what the private equity companies would be prepared to pay for the assets,” he said.