Quantcast
The first installment of our new predictive index shows that dealmakers expect overall M&A to increase, with health care outperforming the overall market READ MORE 

SLIDESHOW

ACG New York Women of Leadership - Entrepreneur Series
Barbara Bradley Baekgaard, founder of Vera Bradley (Nasdaq: VRA), is the latest in a series of entrepreneurs highlighted at ACG New York Women of Leadership events. Photo credit: Robert Blumenfeld

Watercooler

GTCR, Hormel, the Riverside Co-CEOs and Others Win M&A Mid-Market Awards
Amid a slow and challenging year for dealmaking, the winners of Mergers & Acquisitions’ 7th Annual M&A Mid-Market Awards outpaced the competition to grow, innovate and lead the middle market

Roundtable

Financial Services Companies Heat Up M&A Market
Speakers from Flexpoint Ford, Genstar Capital, Baird Capital, Madison Capital Funding and Katten Muchin Rosenman discuss the various factors playing a role in M&A activity within the financial services space

Expert's Corner

Pursuing Pharma Manufacturing
The fragmented pharmaceutical manufacturing industry provides plenty of opportunities for private equity investors, says JLL Partners founder Paul Levy

Bankrupt Hostess' Brands Need Revitalization

Buyers for Hostess assets will need to recapitalize and invest in the iconic brands, says Brette Simon, a partner at Bryan Cave LLP, who specializes in the food industry

After struggling with its unions and deciding to wind down its operations, bankrupt Hostess Brands Inc. has named Apollo Global Management (NYSE: APO) and C. Dean Metropoulos as the lead bidders for Hostess’ Twinkies and other cake assets. The baker had previously named Flowers Foods Inc. as the lead bidder for the Wonder bread and other primary bread assets, McKee Foods Corp. as the stalking-horse for the Drake’s assets, which includes the Coffee Cake brand, and Mountain States Bakers LLC as the stalking-horse for Hostess’ other bread assets. Brette Simon, a partner at Bryan Cave LLP who specializes in the food industry, says that whoever ends up winning the assets will need to focus on revitalizing the brands.

What makes Hostess’ assets desirable?

The brands and the existing revenue base and distribution channels/shelf space.  Even though these brands are well off their peak, under the right cost structure they can still be very profitable.  They have been undermanaged, but with the right management team, combined with economies of scale to help contain costs that a strategic buyer could provide, it could be a win-win.

What types of bidders can we expect to place rival bids?

Bimbo and Cloverhill would be the top strategics, and potentially other regional players for some of the smaller brands.  I would also expect some private equity investors to show up at the table, but it will be hard for them to be competitive against the strategics who can potentially offer significant synergies.  One option is for a private equity buyer to cherry-pick the assets and then enter into co-packing relationships.

What would the addition of the assets mean for a winning bidder?

Many of these assets are old and need significant capex.  Whoever buys the assets will need to make meaningful investments in modernizing the plants and further automation. 

Is there a type of winning bidder under which the assets would be more likely to thrive?   

Only under strategic ownership and without union labor.  The brands have not received much attention as a result of the company's various issues (i.e. – bankruptcy, lack of capital, lack of focus, etc.).  They are also not really on trend, so they need to be part of an organization with the capital, expertise and patience to revitalize them and reverse the trends, something more likely to occur under strategic ownership.

 

For more information on related topics, visit the following: