JM Smucker announced today it plans to buy Hostess Brands for $5.6bn – or a premium of 54% Hostess Brand’s closing price of $22.18 on Aug. 24 (the last trading day before press reports of a potential transaction). This represents an adjusted EBITDA multiple of approximately 17.2x based on Hostess Brands full year 2023 results and an approximate 13.2x multiple when anticipated synergies of $100m are factored in, according to the companies.
The deal, slated to close late this year or early next, will contribute $1.5bn in net sales to JM Smucker, which also predicts an estimated mid-single digit percentage annual growth rate and accretive adjusted earnings per share in the first fiscal year.
The addition of iconic Hostess Brands products, including Twinkies, DingDongs, HoHos and other baked goods, complements JM Smucker’s fast-growing Uncrustables line of sandwiches and fills out the company’s offering of lunchbox staples, which also includes Jif peanut butter, and convenient snacks.
“The acquisition of Hostess Brands … represents a compelling expansion of our family of brands and a unique opportunity to accelerate our focus on delighting consumers with convenient solutions across different meal and snacking occasions,” JM Smucker CEO Mark Smucker said in a press release.
“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,” he added.
Both companies agreed their ethos and go-to-market strategies are closely aligned as are their “deep commitment to inspiring moments of joy and satisfaction,” Hostess Brands CEO Andy Callahan said in a release.
‘Acquisition … will continue to play an important part in our growth story’
The announcement comes after a strong first quarter for JM Smucker in which it saw US retail consumer net sales grow 49%, most of which came from Jif peanut butter sales lapping a product recall the prior year. The return of Jif to shelves combined with strong sales of frozen Uncrustables sandwiches, helped boost the segment’s volume 28 percentage points in the fourth quarter.
The company similarly reported volume gains across all of its other segments. In this regard, the company stands out from other packaged food companies, many of which have struggled with sluggish volumes that have been offset by price hikes in recent quarters. As many industry players prepare to lap early price increases, concerns are mounting about their ability to drive growth via volume – pushing some companies to look for other ways to pad their portfolio, including through mergers and acquisitions.
Indeed, rumors about Hostess Brand going up for sale began after investors expressed concern about its ability to drive volume growth consistently after it relied on price hikes to boost revenue in recent quarters.
Other recent acquisitions in the packaged food space include Campbell Soup Co’s acquisition of Savos Brands for $2.7bn earlier this year and Unilever’s acquisition of frozen yogurt brand Yasso in North America.
JM Smucker executives hinted at the important role acquisitions would play int is future growth during the company’s most recent fourth quarter earnings report.
“We have, over the last couple of years, been really focused in terms of refining our portfolio. But it does not mean that we’re not interested in acquisitions. We remain very interested,” Smucker said during the company’s most recent call with investment analysts.
“The industry as a whole has been somewhat quite on the M&A front, but it’s not for lack of investigating or looking, keeping lines in the water,” he added. “We hope that M&A will continue – or acquisition specifically will continue to play an important role in our growth story over time.”