The investment firms that bought Hostess brand snack cakes for $185 million three years ago are about to make bank on the recovering Kansas City-based company. The firms announced Tuesday that they’d reached a deal to sell a majority of the company for $725 million.
The buyer is a publicly-traded arm of private equity firm The Gores Group, which means investors will be able to buy a piece of the snack cakes maker on the stock market. The deal values the bakery company that produces Twinkies, Ding Dongs and other cream-filled delights at $2.3 billion, according to the Wall Street Journal.
“There’s riches in niches,” says John Stanton, professor of food marketing at St. Joseph’s University of Philadelphia. “We hear a lot of lip service from people saying, ‘I’m eating healthier, I’m eating healthier,’ but the fact of the matter is, foods like Ding Dongs still sell pretty well.”
Metropoulos & Co. and Apollo Global Management LLC didn’t buy Hostess Brands outright in 2013. In fact, they only bought the company’s most valuable assets: the snack cakes. They prioritized Twinkies, lengthened their shelf-life and – as fears of a bankruptcy-related Twinkies shortage loomed – started shipping them again within weeks of buying the company.
“One of the big problems in these big companies that go bankrupt is not failing to sell a lot, but having a lot of expenses,” Stanton says.
The new Hostess Brands is considerably smaller than its predecessor, with a payroll of about 1,200 workers down from a peak of 19,000. There are just three plants, including one in Emporia, Kansas.
Stanton says the textbook turnaround example is Snapple, whose 1994 merger with Quaker Oats turned into a billion dollar disaster. Now owned by the Dr. Pepper Snapple Group, the company is profitable.
“Because they have a different accounting system, they don’t have to cover a billion dollars in interest payments, etc.,” Stanton says. “These things usually work out.”
Stanton thinks Hostess will continue to make money.
“You feel good when you eat one,” he says. “Emotionally, as well as on your tongue.”
Elle Moxley is a reporter for KCUR. You can reach her on Twitter @ellemoxley.