July 9, 2016

Gores Holding, an acquisition group run by private equity firm Gores Group, has paid $375 million in cash, while the group’s chairman and chief executive, Alec Gores, along with current Hostess owner, Dean Metropoulos, and other investors have committed an additional $350 million to acquire Hostess in a deal that values the company at $2.3 billion reports the Wall Street Journal.

The sellers of the majority stake, Apollo Global Management and Metropoulos & Co., stand to see returns of ten times their original investment of $185 million. Upon completion of the deal, which is scheduled to happen in the third quarter, these parties will hold a 42% combined stake in Gores Holding.

Under the terms of the deal, Hostess will be renamed Hostess Brands Inc. with Metropoulos continuing as Hostess’ executive chairman and William Toler retaining his position as chief executive officer.

“We are extremely proud of all that we have accomplished together since we acquired these assets out of liquidation in 2013 and rebuilt the company into the great platform business it is today,” said Andy Jhawar, Senior Partner and Head of the Consumer and Retail Group at Apollo in a recent press release. “Hostess possesses exciting continued organic top-line growth potential and is one of the highest EBITDA margin and cash generative food platforms in the U.S. We look forward to continuing our partnership with Dean and Bill, along with the team at Gores, to further grow and build Hostess.”

Founded in 1919 with the introduction of the Hostess CupCake, Hostess grew through a string of acquisitions, bringing the company to its current size, including 372 bargaining contracts and 5,500 delivery routes. However, by 2004 the company was mired in debt and in bankruptcy court for the first time, followed by a second round in court in 2012.

In 2013 Apollo and Metropoulos invested $185 million in cash and borrowed an additional $500 million to acquire the all but defunct snack business, spending $250 million to improve the company’s balance sheet and undertaking the process of streaming the company’s unwieldy production processes, upgrading facilities and relaunching products. Combined with a new marketing campaign, the measured paid off, with Hostess seeing its market share climb to 16.3%.

As part of the deal, Hostess plans to go public this autumn, marking a dramatic turn-around for the maker of iconic U.S. snacks, Twinkies and Ding Dongs, which only four years ago declared bankruptcy. Industry insiders will be watching and gauging investor interest in the company that is bucking consumer trends.

“It’s not in tune with where customers are going,” said Ken Shea, an analyst at Bloomberg Intelligence. “There will be a high level of scrutiny on their ability to grow.” Shea refers to the increasing trends toward healthy snacks and away from sweet snacks.

At a time when consumers are paying more for fresh, natural, organic, and transparent food and snack options, Bloomberg reports that Hostess plans to rely on its brand power, its emotional connection with consumers, and its atmosphere of indulgence to attain growth. Within these parameters, Hostess is expecting to see sales grow 11% this year to $722 million, and grow an additional 8% in 2017.

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Lynda Kiernan