- Hostess Brands, Inc. announced Thursday that it is acquiring the Big Texas and Cloverhill brands from Aryzta LLC, plus one of its Chicago Cloverhill bakery facilities, according to a press release. The financial terms of the deal were not released.
- This transaction will greatly expand Hostess's breakfast product lineup, with items like Honey Buns, Danishes, and Cinnamon Rolls.
- The Chicago bakery Hostess acquires in the deal is the largest individually-wrapped Danish pastry facility in North America, and will enable the company to bring more product manufacturing in house.
Hostess has come a long way since it shut down in 2012. The sweet baked goods company was bought by Apollo Global Management and Metropoulos & Co. in 2013, and has flourished under new ownership. In addition to a successful IPO, Hostess also made its first acquisition in 2016, picking up Superior Cake Products.
The acquisition strategy for Hostess, according to President and CEO William Toler, includes leveraging the brand and/or warehouse model; expanding baking capabilities; building scale for the company as a broader snacking platform; and providing additional cash flow and earnings per share. This new deal with Aryzta appears to check all of those boxes.
One gap Hostess will fill by picking up the Big Texas and Churchill brands is the breakfast space. As much as consumers enjoy their Ding Dongs and Twinkies, a breakfast staple they are not.
Consumers increasingly want fast grab-and-go options for their first meal of the day, and the honey buns, cinnamon rolls and Danishes Hostess is acquiring fit that bill perfectly.
In addition, Hostess is also getting a new baking facility in Chicago in this transaction. Aryzta had been supplying breakfast items to Hostess from this plant until June of last year, so there's an established partnership there. Now, though, Hostess will be able to manufacture products in-house, as opposed to paying a third party to do so. In a few short years, this could translate into millions of dollars in savings annually.
This deal, which appears to be a smart move for Hostess, is unique from its last M&A foray with Superior Cake Products in 2016. That acquisition helped grow the company's premium products and in-store bakery channel. Conversely, picking up Big Texas and Cloverhill brands helps Hostess get into the breakfast space and manufacture more products in-house.
Hostess's other brands will also likely benefit from these new partnerships. Their distribution strength will give the baker's established products greater access to the club, vending, cash and carry and independent convenience stores sales channels. For it's part, Hostess can also help grow the new brands it picked up through its distribution network.
One strategy Hostess has employed in the past is to buy a brand, and then manufacture it in house. In this transaction, Hostess has the advantage of not only acquiring products, but also a bakery where they can be made. All around, it looks like a pretty sweet deal.