Dive Brief:
- J. M. Smucker is buying Hostess Brands for about $5.6 billion as the maker of Uncrustables and its namesake jams deepens its presence in growing categories and consumer occasions focused on convenience. Hostess is being purchased for $34.25 per share in cash and stock.
- The deal, which is expected to close in Smucker’s fiscal third quarter ending in January, will allow the Ohio company to add to its portfolio iconic sweet brands such as Twinkies and Donettes.
- For Hostess, it marks a startling turnabout for a storied company that just over a decade ago was on the verge of going out of business following two bankruptcies. In recent years, it has been a beneficiary of consumer demand for indulgent snacking, recognizable brands and innovation.
Dive Insight:
While Smucker is synonymous with jams and jellies, its portfolio has grown well beyond to include frozen Uncrustables, Folgers coffee and Milk-Bone dog snacks. Now, Smucker is jumping at the chance to acquire a company that is among the most well-known in the indulgent snacking space.
“With this acquisition, we are adding an iconic sweet snacking platform; enhancing our ability to deliver brands consumers love and convenient solutions they desire; and leveraging the attributes Hostess offers, including its strong convenience store distribution and leading innovation pipeline,” Mark Smucker, the company’s CEO, said in a statement.
Hostess reportedly attracted interest in recent months from larger food giants after demand for its products declined following price hikes to cover soaring commodity costs. The Wall Street Journal noted Smucker beat out Cheerios owner General Mills.
Hostess, which traces its roots back to 1919, was brought out of liquidation a decade ago and re-emerged as a public company in 2016.
It has leaned in toward America’s insatiable appetite for snacking by rolling out Kazbars, a candy-bar-inspired innovation, and Bouncers, tiny versions of Twinkies, Ding Dongs and Donettes. The additions gave the brand a presence in aisles containing convenient bite-size portions already populated by cookies, crackers and candy.
The transaction marks the latest acquisition in the food space as buyers seek to acquire trendy brands and companies feel the pressure of slowing volume following a series of price increases. Just last month, Campbell Soup purchased Rao’s sauce maker Sovos Brands for $2.7 billion. Earlier this year, Unilever added premium frozen yogurt brand Yasso.
Smucker has not been shy about entering or expanding its reach into new categories through deal-making like the company did with pet food.
In 2015, it purchased Big Heart Pet Brands for $6 billion, which added offerings such as Meow Mix. It doubled down on pet food three years later with Ainsworth Pet Nutrition. Still, earlier this year Smucker divested Rachael Ray Nutrish, 9Lives, Kibbles ’n Bits and other pet foods brands for $1.2 billion to Post Holdings.
At the time, Smucker said the sale to Post allowed it to “prioritize investments and resources in the areas of our business that offer the strongest growth and profit potential.” It clearly sees Hostess as a key component of its growth strategy considering the high price it paid to acquire it.
Hostess brings to Smucker net sales of approximately $1.5 billion, with an estimated mid-single digit percentage annual growth rate. Smucker also said it will be able to benefit from about $100 million in synergies within the first two years of ownership.
While Hostess’ shares soared to an all-time high on the news, Smucker’s stock slumped nearly 8%.
The Kansas-based Hostess has targeted the fastest-growing snacking occasions — morning sweets, lunchbox, afternoon reward, immediate consumption and afternoon sharing — that it values at more than $65 billion.
Smucker could use its deep pockets, marketing expertise and innovation prowess to further Hostess’ reach in these categories while expanding the presence of its own brands.
Hostess’ brands have similar pricing at different locations, from dollar stores to higher-end grocers, giving the products mass appeal regardless of where consumers shop or their income level. With consumers watching their spending due to higher prices for everyday items, this could be a benefit to Smucker by allowing it to retain shoppers no matter where they choose to buy.
“We believe this is the right partnership to accelerate growth and create meaningful value for consumers, customers and shareholders,” Hostess CEO Andy Callahan said. “Our companies share highly complementary go-to market strategies, and we are very similar in our core business principles and operations.”
