Deal Type
Buy-side transaction

Deal Team
Chris Rowe, Andrew Allred

Company Overview

When you think about Little Debbie® baked goods, you might not think about parent company McKee Foods — America’s largest family bakery, which was founded in Collegedale, Tennessee in 1934. The McKee Foods story began during the height of the Great Depression when founder O.D. McKee began selling 5-cent snack cakes from the back of his car. Soon after, he and his wife, Ruth, bought a small bakery on Main Street in Chattanooga, using the family car as collateral. 

Over the years, the company has grown and expanded. Today, it’s known for creating and producing Little Debbie® baked goods, Drake’s® cakes, Sunbelt Bakery® snacks and cereals, and Fieldstone® Bakery food products.

Situation

McKee’s long-standing relationship with FourBridges dates back more than 15 years. Over the years, FourBridges has advised McKee on several potential acquisitions. In 2013, FourBridges represented McKee in the acquisition of Drake’s cakes from Hostess. McKee’s largest acquisition to that point, the purchase helped expand the company’s reach in the Northeast region.

In 2019, McKee engaged FourBridges once again to help pursue the acquisition of Chicago-based Prairie City Bakery, a 25-year-old company that produces more than 125 varieties of individually wrapped and bulk food service products, including the Ooey Gooey Butter Cake. Once again, McKee was looking to grow its business and felt that Prairie City Bakery was a good fit.  

Challenge

McKee was involved in a competitive process against other potential suitors to acquire Prairie City Bakery, a target the McKee Board viewed as a strategic asset. FourBridges built a granular operating model for Prairie City Bakery then layered on 10+ scenarios that could be run through the model, factoring in McKee-specific operating and sales synergies.  

FourBridges worked closely with McKee’s CFO to create these multi-scenario outputs, which FourBridges then leveraged to run Discounted Cash Flow and Leveraged Buyout Analysis in order to determine what price McKee could bid for Prairie City given specified required returns, capital structure requirements, and operating assumptions.  

Process

FourBridges paired this income-based valuation approach with detailed public comparables and precedent transactions analysis (a market-based valuation approach) to home in on optimal bidding strategy for McKee. 

FourBridges’s ultimate objective was to deliver to McKee a recommended bid price and structure for Prairie City bakery that was as low as possible (to increase expected returns to shareholders) while still winning the competitive auction process. FourBridges delivered its recommendation to the McKee Board, which, leaning on FourBridges’s recommended valuation, ultimately bid and won the deal. 

Results

With the acquisition of Prairie City Bakery, McKee successfully accelerated the company’s growth and expansion. Today, the company employs more than 6,800 people in Tennessee, Virginia, Arkansas and Arizona. The family-owned business is currently in its third and fourth generations of family leadership, and its fresh products are distributed across the United States and Canada.