Hearthside - an LBO to Restructuring Case Study

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It’s case study time - let’s talk about Hearthside Food Solutions.

At some point this Company came up in a conversation I was having, I think around 2023, but maybe in early 2024. I was either talking about this or a comparable to it to someone deep in the consumer goods space. They brought up how Hearthside was a no brainer pass and it came down simply to customer concentration. All it takes is one customer to back out or reduce volume and then suddenly you have significant issues. It’s risk that was bound to happen, so he argued that he doesn’t do any large customer concentration deals - even if it’s blue chip customers, insurance companies, the government, etc. While there’s some deals with concentration risk that you have to play, in retrospect, this Pass was a good idea as Hearthside eventually filed for bankruptcy in late 2024.

A 2018-vintage LBO, by late 2024, Hearthside filed for Chapter 11 bankruptcy protection in the Southern District of Texas in November of 2024. The RSA outlined a plan to eliminate approximately $1.9B of debt (~2/3 of its debt load) and inject $200mm of new equity capital into the business; additionally supported by a $300mm DIP.

In this piece, we’ll get into what happened to this once, high-flying company.

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The Rise of Hearthside

The First Sponsor Group: Hearthside is a contract baking and co-manufacturing snack provider. We’ll get into more later, but the business grew to include nutrition bars, snack bars, cookies, crackers, and other grain-based food and snacks. Hearthside was originally a carve-out of a few Roskam Baking facilities that was sold to Wind Point Partners in 2009. Rich Scalise, a former Ralcorp and ConAgra executive was brought in as CEO of the Michigan-based maker of snack bar, pretzels, and other snacks. In 2009, it was a mere $145mm revenue business that would rapidly grow through tuck-ins and organic growth. Constitution Capital Partners were also part of the first equity group. In 2010, Hearthside acquired a cereal and granola facility in Oregon and a cookies, crackers, and baked bars maker based in Ohio.

Along the way, Wind Point completed a $400mm Dividend Recap, led by Antares, in 2012. Senior Leverage post the transaction was 3.8x, with 4.7x Total Leverage.

From there, Wind Point merged Hearthside and its other comparable portfolio company, Ryt-Way Industries, together, creating a 19-facility provider that spanned 19 states. By the end of 2013, the Company had grown to a network of 20 facilities and $1B in Sales. Along the way, Hearthside’s Golden Temple unit (a ready-to-eat cereal and granola company) was sold off to Post Holdings, but ultimately this business now had enough scale to be sold to a middle-market private equity firm.

The Second Sponsor Group: In 2014, Goldman Sachs and Vestar Capital Partners acquired Hearthside for a $1.1B valuation. This was a perfect window - rates were low and Hearthside was a compelling roll-up strategy that was rapidly growing. Later that year, Hearthside entered Europe by acquiring VSI, a Netherlands-based nutrition bar producer.

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