If you are someone who began hoarding boxes of Twinkies last year, you may have felt a bit reactionary following the recent news on Hostess. With the Private Equity buyout of Hostess, this heartening symbol of U.S. culture is returning to store shelves. Even with expertise on their side, the two firms that agreed to the buyout certainly have their work cut out for them in revitalizing the brand to its glory days.
The former Hostess was a large, complex company with multiple brands, various unions and pensions to manage, debt concerns, management problems, and some may argue a stale product line. The new buyers, with their wealth of experience, see salvageable value in the Hostess brands they wish to restore. Invasive due diligence prior to the carve-out is assumed to have taken place, as is with any buyout target regardless of the risk level. We should be thankful there are brave heroes out there willing to take on such risks.
Personally, I haven't had a Twinkie, nor have I seen anyone eat a Twinkie, in many, many years. Yet, I am pretty sure that I could be in and out of a store with a Hostess product relatively quickly. In that strange and mysterious area of consumer memory, I kind of know where to find them in any store. Maybe it was the threat of losing that comfortable feeling of just knowing they exist that had some nostalgic foodies in a panic. And thankfully, we have private equity to thank for the resuscitation of this truly American brand.
You may or may not know: Private equity was instrumental over another great American rescue, and probably the greatest symbol of the U.S.: the Washington Monument. The "patriotic philanthropist" David Rubenstein, co-founder of the private equity firm The Carlysle Group, put up $7.5 million to help repair the structure after it was damaged in a 2011 earthquake. Rubenstein is well known for his involvement in these national preservation endeavors, so this is not in any way to suggest that he does this for any self-promotion. However, could this type of involvement in high-profile philanthropy aid the troubled image of PE and the financial services industry? After all, financial firms are trying any means possible to restore the public trust.
It is possible we are entering an era where private equity is a savior rather than self-indulgent capitalist villain. For the financial services industry as a whole, that would be a welcome change from the multi-directional battering suffered in recent years. New rounds of regulations, some directly aimed at PE and other alternative assets, have become distractions to applying limited resources to the mending of damaged balance sheets.
Plus, a challenging marketplace alongside an onslaught of negativity from critics has created a lot of negative news around the financial recovery. That, of course, creates many areas of opportunity for consulting firms. The finger-pointing is over and the financial services industry is now fully entrenched in the struggle to repair its image.
The lead taken by PE may provide the momentum shift the financial services industry needs to rebuild its status. And if it can provide solid returns for investors, that would be the icing on top. Or—in the case of Twinkies—icing in the middle.
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