- Hostess Brands is selling Superior Cake Products to Sara Lee Frozen Bakery for $65 million, the companies said in a statement.
- The divestiture comes just three years after Hostess acquired the in-store bakery company for $51 million — its first deal since it reentered the market under new owners following its second bankruptcy in 2012.
- The maker of Twinkies, Ding Dongs and Ho Hos expects to use the cash from the transaction to reinvest in its business and pursue other strategic acquisitions.
After returning to the market in 2013 under new owners Apollo Global Management and Metropoulos & Co., Hostess focused on innovation and expansion beyond its Twinkies and Ho Hos snack staples. Recognizing even health-conscious consumers still looked to the company for indulgent treats, it acquired in-store bakery company Superior Cake—a maker of premium eclairs, madeleines, brownies, cookies and handheld pies.
At the time, former Hostess CEO Bill Toler called the acquisition an opportunity to capitalize on the growing trend of “upward indulgence” in baked goods. The company seemed poised to grow through innovation and further acquisitions in the sweets space.
Despite growing Superior’s net revenue 30% in three years and Hostess acknowledging it as a “high performing business,” the sweets maker is shoring up its focus. Historically, Hostess has succeeded in developing creative new variations on its mainstay, center-of-the-store brands, so it may have found it difficult to make a move to the premium and fast-growing in-store bakery channels.
In a statement, Andy Callahan, CEO of Hostess, said the company will "focus our future investments on areas of our business that better leverage our core competencies and pillars for growth."
After spending $51 million to buy Superior, Hostess is turning a nice profit with the sale to Sara Lee. It could be handy capital for Hostess to use in its core business rather than keep spending money to invest in a larger bakery sector that may be a distraction to its underlying core business model.
Earlier this year, Hostess bid $1.5 billion on Kellogg’s Keebler, Famous Amos and fruit snack businesses. The brands were ultimately sold to Ferrero. Even though it lost out on the purchase, the brands seemed to be more in line with what Hostess currently has in its portfolio and could hint at where the company might look for future deals.
Sara Lee has embraced a similar approach to Hostess in purchasing Superior to advance its "goal of expanding our presence in the high-growth in-store bakery category," Craig Bahner, the company's CEO, said in a statement. Sara Lee was acquired from Tyson Foods by private equity firm Kohlberg & Company last year.
With Tyson’s main portfolio focused on protein, moving its frozen bakery business — including Sara Lee, Van’s, Chef Pierre and Bistro Collection brands — into a standalone company made sense. Kolhberg was tasked with reinvigorating the brand. For Sara Lee, the addition of Superior gives it a new product that seems to be a better fit for the offerings it currently has, but it will need to tread carefully as it makes further inroads into the in-store bakery channel.