Hostess owner invests $135M+ in Utz

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Fever15b, 1/14/03. Photo by Scott S. Hamrick. The Acme Store, Phoenixville, PA. IN THIS PHOTO- Utz Potato chip bags produced in Eagle green, just one of many products that are being sold as the eagles progress farther into the [playoffs. 2 of 2.

Utz Quality Foods, LLC, the $800 million (annual sales), Hanover, Pa. potato-chip and pretzel maker that ranks third (after PepsiCo's Frito-Lay and Snyder's-Lance Inc.) among U.S. grocery salty-snack sellers, says Metropoulos & Co. -- investor in Hostess cupcakes, Pabst beer and other popular brands -- bought a "significant" minority stake in Utz when it helped finance Utz's recent $135 million+ purchase of publicly-traded Golden Enterprises.

The two family-owned firms will work together to double Utz sales, Utz CEO Dylan Lissette told me. "We're really looking forward to it," he said. "We've built a pretty iconic story and grown into new markets with new brands along the way, and increased distribution and sales," culminating with "the big enchilada,"  Alabama-based Golden, maker of Golden Flake snacks.

"That's our next decade of growth, to penetrate the Southern markets, with a good route system and very well recognized brands to integrate and compete with the Fritos of the world," Lissette added.

Taking on Metropoulos as an investor and strategic partner "seemed like the next phase of our growth," he told me. "We'll use their growth capital and their expertise on technology. We've been talking to them for a year. We're both driven, high-performance companies. Together is the best way to continue our success." 

Utz says the Metropoulos financing was "the largest initial private equity transaction for a U.S. snack company since 2013," when Metropoulos partnered with Apollo Global Management, the New York hedge fund whose owners include billionaire 76ers lead owner Josh Harris, to buy the assets of the bankrupt former Twinkie maker Hostess Brands for $410 million (that was AFTER prior management closed plants in Northeast Philadelphia and elsewhere. CORRECTED).

The owners later paid themselves and other investors a $905 million dividend, funded with borrowed money.  Gores Group, another private-equity firm, bought a controlling stake in Hostess from them last summer for $725 million, in a deal valuing the company at $2.3 billion, more than five times Metropoulos and partners' investment of three years earlier. 

By contrast with Metropoulos' investment in Hostess, the Utz deal "isn't distress-related," Lissette told me. "We're thriving. Our plants are efficient, and I don't see any rationalization."

Instead, he says Utz will give its workers a piece of the action: Lissette said Utz is considering a partial employee partial ownership like that at Chobani, the privately-held yogurt company, in advance of any potential initial public stock offering (IPO) -- a way to reward workers while spreading the founding families' investment risk. Privately-held Gore-Tex, Wawa and Wegman's also have employee-ownership arrangements.

If Utz operations are already lean, what can Metropoulos add? "I see new merger and acquisition opportunities," funded by Metropoulos capital, Lissette said. "And at the same time we do have some antiquated, legacy technology that will take significant investment. Like ERP (Enterprise Resource Planning software) systems" that could help fine-tune Utz's  11 plants, 1,500 routes (corrected) and 3,300 staff. 

Utz funded prior acquisitions with its own cash, but it could not have afforded both acquisitions and such major tech updates at the same time without Metropoulos, Lissette said. Utz and Metropoulus will combine expertise and shop ERP software from SAP, Oracle and rival vendors "to become more proficient in distribution and product management as we go from $800 million to $1.5 billion in a competitive industry" as rivals merge and retail sales shift online.

Members of the Rice family, fourth-generation successors of Bill and Salie Utz, who founded Utz in 1921, remain the controlling and majority shareholders,  with Metropoulos as "strategic partners." Lissette's wife is a Rice.

Determined to boost sales and stay profitable amid the consolidation of the U.S. salty and fatty snacks business, Utz has bought a string of smaller brands since 2011, including Alabama-based Golden Enterprises and its Golden Flake snacks.

 In 2011, Utz bought Zapp's and "Dirty" potato chips, and upgraded the Lousiana-based plant that sells those chips; Wachusett, in Massachusetts; and the Reading, Pa.-based Bachman and Jax Cheese Curls brands, which Utz moved, with production equipment, to its Hanover plant, preventing what Lissette once told me would otherise likely have been "the brand's demise."

Utz also owns Good Health and Snikiddy, among others, and operates 11 plants in Pennsylvania, Alabama, Colorado, Florida, Louisiana and Massachusetts. 

Lissette pledged to continue making "key acquisitions" without compromising "high quality." Lissette said he and his family members picked Metropoulous from "many possible partners," and was drawn to "their expertise in operations, brand expansion, innovation, growth and acquisition integration, combined with shared family values and a passion for heritage brands."

Under the Rices, "Utz has quietly grown into a snack powerhouse, expanding its product portfolio and geographic reach," said Evan Metropoulos, billionaire principal in his family's investment firm, in a statement.

 “We look forward to working closely with Utz’s management team to develop creative product innovation, capture new consumers and generations of snackers with strategic guerrilla marketing and branding, and to broaden Utz distribution nationally," while also "enhancing overall operations and focusing on future strategic acquisitions,” added fellow principal Daren Metropoulos.

Daren Metropoulous made the news recently when he paid $100 million (half the asking price) to buy the Playboy Mansion in Los Angeles from aging pornographer Hugh Hefner's company. Hefner, 90, remains a tenant, paying Metropoulos $1 million a year, the Los Angeles Times reported.

 

 

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