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In the Battle For Twinkies, Wall Street Creamed Main Street

Tuesday, 12 Mar 2013 | 4:56 PM ET
Hostess Twinkies
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Hostess Twinkies

When legendary snack maker Hostess went on the liquidation chopping block last fall, it attracted wide-ranging of interest from Main Street investors. The likes of small time traders, mom and pop investors, crowdfunding startups, and private equity upstarts flooded banker phone lines, put out press releases, or contacted the bankruptcy court.

Yet, in throwing their hats into the ring, Main Street investors found themselvesout-matched against Wall Street's circle of investment bankers and turn-around experts. Ultimately, the deeper experience (and pockets) of Wall Street won out.

It was no contest - literally.

Yesterday, in court filings, Hostess' lawyers said they were canceling an auction scheduled for March 13 because there was no one to challenge a $410 million bid by Wall Street heavyweights C. Dean Metropoulos and Apollo Global Management.

One of the last small-time investors standing in the process was Austin Hurst, a virtually unknown private equity investor from Florida who competed in early negotiating rounds with Hostess in a failed attempt to win an initial bid called the "stalking horse."

Hurst, age 26, runs Hurst Capital, a Florida-based firm with an extremely limited track record, with his brother Zach. After learning last year that Hostess would be sold off in liquidation, the two went about a lengthy and intensive process to put together a team of 8 or so partners and investors to make a run at the company.

They worked weekends and holidays putting together a restructuring plan for the failed brands and stretched their rolodexes looking for investors to help them foot the massive bill they'd need to be serious contenders.

"Putting together a capital stack this large with that little amount of time and going up against someone like [Apollo CEO] Leon Black was pretty daunting," Hurst told CNBC in a phone interview. "But we stuck to it. We were pretty confident we were going to submit [a bid]. Ultimately, we were outmatched by the power and size of their firm."

While Hurst was unable to make a serious challenge against Metropoulos and Apollo, he did manage to get further than nearly every other small-time investor eyeing a bid. In November, Hostess' bankers received literally hundreds of inbound indications of interest, many from Main Street investors.

One by one, however, those investors would be whittled away due to lack of experience, an inability to raise sufficient capital, or insurmountable legal hurdles.

For his part, Hurst speaks about the failed mission with a mix of disappointment matched with a youthful exuberance of being welcomed, albeit momentarily, into an inner circle normally reserved for Wall Street headliners.

And he is quick dismiss any notion that the deck was stacked against him from the start.

"Not at all. I don't think so," he says. "We were well received by the bankers and everyone involved in the process was more than supportive of us. It's kind of an old-boys network but we showed our cards and showed what we were capable of."

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