When Hostess announced plans to close down for good in late 2012, it kicked off a run on Twinkies, Ding Dongs and the company's other classic goodies, with fans fearful their favorite cream-filled cakes would soon be gone forever.
Among the buyers were some of Beverly Hills billionaire Alec Gores' five children.
"Even my own kids were out trying to buy the last Twinkies," said Gores, founder and chief executive of Beverly Hills private equity firm Gores Group. "It's a big brand. It has big, iconic products."
Now, it's Gores himself who wants a piece of the sugary snack maker.
He and other investors are teaming up to buy Hostess Brands in a $2.3-billion deal, marking yet another twist in the ownership of the company – and adding another chapter to its unlikely comeback story.
Hostess' current owners, billionaire food magnate C. Dean Metropoulos and New York private equity firm Apollo Global Management, on Tuesday announced they would sell a controlling stake in the snack-cake maker to Gores Holdings, a shell corporation created in August with the express purpose of buying a company with growth prospects.
The deal lets Hostess go public more quickly and easily compared with the traditional route of filing for an initial public offering.
Though Hostess will be its own public company after the deal, Gores Group, Apollo and Metropoulos will all own big stakes. Gores' firm will control some of the company's board seats and Metropoulos will serve as Hostess' chairman.
Gores Group created Gores Holdings in August, raising $375 million in a public offering. Gores said the firm looked at about 30 companies before settling on Hostess as its acquisition target.
He said the baking company – which has gone through a long list of owners over its nearly 100-year history, and went through bankruptcy twice in less than 10 years – is now a healthy, if not healthful, business, and one that still has plenty of upside.
"It's a very stable business that does as well in a bad economy as in a good one," Gores said. "They have amazing margins, and they have room to grow. They could have gone public, but we were public already."
The company brought in revenue of $650 million in the 12 months ending in May, and posted gross earnings – before interest payments, taxes and a few other costs – of $220 million, according to a press release announcing the deal.
He said Hostess can continue to grow sales by developing new products and expanding its product lines, such as in-store baked goods for grocery stores.
Gores Holdings will buy Hostess for about $725 million in cash – $375 million raised in last year's public offering, plus another $350 million in new cash from Gores, Metropoulos and other investors.
Between the cash, equity from Apollo and Metropoulos and about $1.2 billion in debt, the deal values Hostess at about $2.3 billion, according to Gores Group and Apollo. The deal is expected to close this fall.
Gores said Metropoulos' continued involvement with the company was a big part of his interest in Hostess.
Metropoulos has turned around struggling food and beverage companies before. In one recent deal, he acquired Pabst Brewing Co. for $250 million in 2010, then sold it in 2014 for a reported price of more than $700 million.
"He's a great operator," Gores said of Metropoulos. "He's by far one of the best in the world."
Under Apollo and Metropoulos' ownership, Hostess slashed costs – and jobs – by increasing automation and changing how it distributes products.
The company today has little resemblance to the Hostess that filed for bankruptcy protection in 2012, when it employed 18,500 workers. The old firm operated dozens of bakeries and distribution centers, made bread and a wide range of other bakery products, had pricey labor and pension agreements with its workers and was pushed into liquidation after a bakery workers' strike.
Today's hostess is much smaller, operating just three bakeries that make snack cakes almost exclusively, and is out from under the old company's labor and pension agreements. It has fewer than 2,000 employees.
Jim Prevor, a food industry analyst, said with those problems behind it, Hostess is well positioned to post steady revenue and earnings.
Despite long-term trends toward healthier eating and away from the kind of sugary, preservative-heavy snacks that are Hostess' calling card, he said Twinkies, Ding Dongs and other Hostess treats still have huge name recognition and are must-have items for retailers.
"The brands are really an entitlement to shelf space at every supermarket and convenience store in America," he said. "The problems that company had in the past have nothing to do with the problems of the [snack food] category."
Though they'll retain a big stake in Hostess, Apollo and Metropoulos have already made solid returns on their initial investment.
They bought the company's snack-cake brands and operations for $409 million in 2013. Last year, they company took on more than $1 billion in new debt, with $905 million of that paid to Apollo, Metropoulous and their investors, according to a report from credit rating Moody's.