Hostess Gives Investors Chance to Bet on Twinkies at a Discountby
Baked goods industry challenged by health-conscious consumers
Company’s debt load will weigh on potential valuation
Investors will be able to bet on the success of fried Twinkies and creme-filled Ho Hos at a discount once Hostess Brands LLC goes public.
Hostess is aiming for an enterprise valuation of $2.3 billion -- about 10.4 times this year’s projected adjusted earnings before interest, taxes, depreciation and amortization -- when the company is publicly traded, according to a statement. That’s cheaper than snack-making peer Amplify Snack Brands Inc.’s 14.5 times, packaged-foods group Treehouse Food Inc.’s 13.2 times or pretzel and chip maker Snyders-Lance Inc.’s 15 times, according to data compiled by Bloomberg.
Hostess plans to become a publicly listed company after reaching an agreement on Tuesday with Gores Holdings Inc., a special-purpose acquisition company sponsored by an affiliate of Gores Group LLC.
So why the discount? Kansas City, Missouri-based Hostess relies on one main ingredient in its home market: sugar. It may be tough to grow in that category as health-conscious consumers increasingly ditch sweet snacks for healthier alternatives, said Ken Shea, an analyst at Bloomberg Intelligence.
“Look at their up-and-coming products, like fried Twinkies,” Shea said. “Sweet baked goods -- that’s not exactly in tune with where customers are going these days.”
Hostess began selling its cupcakes in 1919, and introduced its famous Twinkies -- sponge snack cakes filled with sweet cream -- 11 years later.
The company will also carry a sizeable chunk of debt, which could spook investors, he said. Hostess is aiming for a leverage ratio of about 4.5 times adjusted 2016 Ebitda, according to the company’s statement. That compares to an average of 3.6 times in the latest fiscal year for the 17 companies in similar industries, according to data compiled by Bloomberg.
Hostess will also need to convince investors that its recent financial troubles are a thing of the past. The company emerged from bankruptcy in 2009 under the control of buyout firm Ripplewood Holdings LLC and lenders. Previously known as Interstate Bakeries Corp., it changed its name to Hostess Brands that year.
In the second go-round in bankruptcy protection in 2012, Apollo Global Management LLC and financier C. Dean Metropoulos bought the company in 2013. When it lists, Apollo and Metropoulos will own 42 percent of the new company, which will be renamed Hostess Brands Inc.