Twinkies: Brought to you by private equity

Nancy Marshall-Genzer Nov 12, 2014
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Twinkies: Brought to you by private equity

Nancy Marshall-Genzer Nov 12, 2014
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Private equity saved the Twinkie by buying up its manufacturer, Hostess Brands, and reportedly tripling its value in the process.  

Hostess’ owners, Apollo Global Management and Metropoulos and Co. bought the company for $410 million almost two years ago.  Today, there’s speculation it’s worth almost $2 billion.  How do private-equity firms do it?

“They buy the company’s assets and then they start looking for inefficiencies,” says David Robinson, a finance professor at Duke University’s Fuqua School of Business.

In the case of Hostess, that meant outsourcing delivery of Twinkies and Ding Dongs, slashing the labor force and closing some plants.

But the private-equity buyers also capitalized on nostalgia for Hostess snacks, and the panic that they would soon disappear. 

Their social media campaign featured stars like Snoop Dogg tweeting about a special delivery of Twinkies. 

Even Wall Street analysts weren’t immune.

“I’m a Ding Dong man,” says Bruce Cohen, senior partner at Kurt Salmon.   He did some panic-buying for his office. “We went on Amazon and we bought Twinkies and Ding Dongs and apple pies and the small doughnuts, and we had a big celebration.”

With Hostess’ value apparently soaring, other private-equity firms are trying the same thing. 

“Just because a company is financially a wreck, it doesn’t mean there’s not a loyalty and it symbolizes a certain thing and it  brings a certain joy and a deliciousness,” says Peter Cowen, managing director of  Clear Capital Advisors.

There are other examples of money being made from nostalgia, Cowen says.

Two cases in point: The turnarounds of Pabst Blue Ribbon beer and Old Spice cologne.

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