KANSAS CITY, Mo. -- Hostess Brands Inc. has acquired assets from specialty-food company Aryzta LLC, including its Big Texas and Cloverhill brands, and the Chicago Cloverhill Bakery, the largest facility producing individually wrapped Danish pastries in North America.
“This is an excellent enabling acquisition for the Hostess breakfast strategy and fills a key strategic gap in our product portfolio,” said Dean Metropoulos, executive chairman of Hostess. “The Big Texas and Cloverhill brands and private-label partnerships will add significant strength to our growing breakfast business.”
The distribution strength of the Big Texas and Cloverhill brands provides Hostess with greater access to independent convenience-stores sales channels, as well as breakfast partnerships with several retailers, the company said. Moreover, the acquisition expands Hostess’ range of breakfast items in the sweet baked-goods category, which now includes HoneyBuns, Danish Pastries and Cinnamon Rolls. The company will rely less on co-manufacturing given these increased offerings.
“This strategic acquisition allows us to bring important product manufacturing in-house as we expand and drive growth in our breakfast product portfolio,” said Bill Toler, president and CEO of Hostess. “In addition, this purchase will enable Hostess to forgo in-house capital investments and create significant value over the next few years.”
Hostess will receive all inventory, property, plant and equipment, as well as customer relationships, from the Chicago Cloverhill Bakery. Financially speaking, the brand expects short-term EBITDA losses of about $15 million to $20 million. Hostess also expects Aryzta to be EBITDA-positive by the first half of 2019, and to contribute approximately $20 million to $25 million in EBITDA by 2020.
“We have had a long supply relationship with Aryzta for our breakfast items and are eager to expand our growing breakfast offerings with these capabilities,” said Andy Jacobs, COO of Hostess. “In addition, the positioning and consumer loyalty to the Big Texas and Cloverhill brands will broaden our participation in a number of distribution outlets. This acquisition will enhance our competitive position as we have the opportunity to further build our branded distribution and market share in the breakfast category within sweet baked goods, as well as enhance new and existing retailer relationships, particularly in the complementary club and vending sales channels.”
Despite the expense of the purchase, Hostess said it will still have the financial flexibility to consider future funding acquisitions, optional debt repayments or restructuring its equity. Additionally, the brand expects to immediately depreciate a hefty portion of the acquisition price for tax purposes.
In its 2017 financial outlook, Hostess said it will continually grow shareholder value through its strategic initiatives, including core distribution expansion, new-product implementation and line extensions, pursuing white space opportunities and serving as a platform for future acquisitions.
Kansas City, Mo.-based Hostess is a packaged food company that focuses on developing, manufacturing, marketing, selling and distributing fresh sweet baked goods in the United States. It produces a variety of new and classic treats including Twinkies, Ding Dongs, Ho Hos, Donettes, and Hostess Bake Shop and Fruit Pies.