Hostess taking disciplined approach to M&A

PARIS — When it comes to the company’s acquisition strategy, Lenexa, Kan.-based Hostess Brands, Inc. is on the lookout for “niches at scale,” company executives said during a June 8 presentation at the Deutsche Bank dbAccess Global Consumer Conference in Paris.

“Is there a bit of a niche or a point of difference where we believe we can actually sustainably grow that business, with the capabilities that we bring to that asset,” explained Travis Leonard, executive vice president and chief financial officer of Hostess. “So that’s when we think about the landscape. We’ve got the firepower; we can be patient. But those are the type of assets we’re looking for.”

Andrew P. Callahan, president and chief executive officer, echoed Mr. Leonard’s comments, adding that one of the advantages that Hostess has is time, which he said is on the company’s side. He said the company believes so strongly in its core business and is so confident in its ability to deliver top-tier shareholder returns that it can be disciplined in its approach to mergers and acquisitions.

“We don’t need M&A to create disproportionate shareholder value, I believe, for our investors,” Mr. Callahan said.

He pointed to the company’s acquisition of Voortman as a prime example of Hostess’s ability to identify a target, integrate it and grow it. Hostess completed the $320 million acquisition of Voortman Cookies Ltd. in January 2020. Since that time, Hostess has introduced a number of new products and updated packaging for the Voortman brand.

Mr. Callahan said the Voortman deal also fit into Hostess’s strategy of acquiring a business with a scalable niche.

“It’s in the subsegment of a large category that we thought was growing at greater the rate similar to the Hostess (brand),” he said. “We were able to transform the portfolio and an area that we thought was growing greater than food with snacking is. And then when we invested in these capabilities, whether it’s data, it’s innovation or brand growth — all that works through our warehouse distribution model. … Voortman was scalable, too.”

Mr. Callahan said the disruptions COVID had on the supply chain also altered potential acquisition targets. Many of the small and mid-tier businesses that may have been acquisition candidates also were the companies most affected by supply chain disruptions. With many areas of the supply chain getting back to normal, Mr. Callahan said he believes those businesses will once again be coming to the market. When they do, Hostess will be positioned “to get advantage of it at the right time,” he said.


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