KANSAS CITY — The announcement earlier this month that Hostess Brands, Inc. has entered an agreement to acquire Voortman Cookies Ltd. from Swander Pace Capital is generating buzz, not just from the Kansas City-based maker of Twinkies and Ho Hos, but also from the analysts who cover the sweet goods maker.

The $320 million transaction sets the stage for Hostess to further diversify its product portfolio while at the same time creating meaningful growth opportunities and compelling financial benefits.

Founded in 1951, Voortman Cookies has evolved from a Hamilton, Ont., bakery opened by two young Dutch brothers, William and Harry Voortman, into a thriving business that ranks as the No. 1 player in crème wafers and sugar-free cookies, as reported by Nielsen for the 52-week period ended Nov. 2. According to Nielsen, Voortman has achieved compound annual point-of-sale growth over the last three years of around 5%.

Approximately 74% of Voortman’s sales are generated in the United States, with 21% of sales in Canada and 5% in other countries. Crème wafers and sugar-free cookies each account for about 39% of product sales, with specialty cookies making up the remaining 22% of sales.

The company operates seven cookie and three wafer lines, with an additional wafer line in the process of being commissioned, at its headquarters in Burlington, Ont.

Andrew P. Callahan, president and chief executive officer of Hostess, used the term “compelling” several times in describing what the addition of Voortman means to the Hostess portfolio.

“This acquisition is aligned with our strategic focus, leverages our core competencies, which we believe provides a compelling return for our use of cash and strong cash flow,” Mr. Callahan said during a Dec. 2 conference call with analysts.

Providing additional highlights of the transaction, Mr. Callahan said the acquisition provides “an attractive entry point into the adjacent wafer and cookie segment with the No. 1 share brand in wafers and sugar-free cookies, driven by a unique and ownable position in the larger cookie category, diversifying our sweet baked goods portfolio. Second, it provides a meaningful opportunity for growth as we leverage Hostess’ broad-based distribution model, focused and tailored customer approach, innovation and promotion expertise and scaled merchandising capabilities to grow.

“Third, the financial benefits are compelling… We will pay $320 million, which represents a post-synergy EBITDA multiple of 9.1x. We will begin integrating immediately and expect to capture full synergies in 12 to 18 months. Additionally, this transaction will provide mid-single-digit e.p.s. accretion in 2020 and double-digit e.p.s. accretion by 2021 and beyond. We expect the acquisition will be accretive to EBITDA margins, maintaining our profitability in the top quartile of our peers.”

Since emerging from bankruptcy in 2013, Hostess management has emphasized a consistent vision for building a sustainable profitable growth company. Hostess in 2018 acquired certain U.S. assets of Aryzta L.L.C., including one of the company’s Chicago Cloverhill bakery facilities and its Big Texas and Cloverhill brands. The transaction elevated Hostess’ presence in the breakfast category and filled a key strategic gap in its product portfolio. More recently, Hostess sold Superior Cake Products, Inc. to Sara Lee Frozen Bakery. At the time of the sale, Mr. Callahan said Superior, while a high-performing business for Hostess since its acquisition in 2016, no longer fit into the company’s core competencies and pillars for growth.

Meanwhile, Mr. Callahan said the addition of Voortman fits Hostess’ strategy, creating “a larger and more diversified sweet snacking company with a unique and differentiated product suite in the adjacent $8.4 billion cookie category.”

“Voortman has a well-defined consumer proposition that complements and extends the growing Hostess portfolio into the growing cookie and better-for-you snacking categories,” he said. “The brand is at the right phase of development to benefit from Hostess’ core capabilities and proven operating model to grow distribution and brand awareness while reducing operating costs. Voortman’s household penetration is relatively low, providing a long runway for growth. Additionally, we believe our strong merchandising capabilities and customer relationships at food, c-store, drug, mass and other key retailers can help accelerate Voortman’s growth trajectory. We expect to realize further benefits of scale via shared, established, efficient infrastructure and strengthening of collaborative retail partnerships in the United States and Canada.”

Mr. Callahan said Voortman currently generates most of its sales in traditional food and mass retailer channels within the United States, primarily because it has been working with an independent distributor model. With Hostess’ help, he expects Voortman’s product distribution to expand into other key retail channels. He said he also expects Voortman’s seasonal product programming and innovation to fit in nicely with Hostess’ go-to-market strategy.

“We will use our superior capabilities of efficiently executing merchandising at scale to enhance Voortman’s limited-time offer displays and other in-store merchandising,” he said. “Importantly, we expect our category management expertise at retail to also drive Voortman’s presence in key measured channels.”

Thomas A. Peterson, chief financial officer and treasurer of Hostess, said the transaction, if it closes in early January as anticipated, will result in approximately $20 million of incremental EBITDA and mid-single-digit accretion to earnings per share in 2020, excluding one-time integration costs of approximately $30 million to $35 million. He said Hostess expects double-digit e.p.s. accretion thereafter upon full achievement of identified cost synergies and $40 million to $50 million of adjusted EBITDA by 2022.

News of the acquisition drew the attention of analysts, who mostly viewed the transaction as a positive for Hostess in its quest to broaden its portfolio beyond traditional sweet baked goods.

“The acquisition diversifies Hostess’ business into cookies with a focus on wafers, premium, and sugar-free cookies and expands Hostess’ presence into better-for-you snacking,” Pamela Kaufman, an equity analyst with Morgan Stanley, wrote in a Dec. 3 research report. “Hostess plans to finance the acquisition through cash on hand and $140 million in debt, and targets deleveraging from 4.5x to 4x by the end of fiscal 2020. Overall, we believe the transaction has potential to offer an attractive return profile given opportunities for top-line growth and cost synergies.”

New York-based Morgan Stanley raised its price target on Hostess to $15 from $14 to reflect the transaction.

Digging deeper into the deal, Ms. Kaufman pointed to the complementary capabilities of Hostess and Voortman, which she said should contribute to accelerated top-line growth.

“In particular, we see potential for Hostess to further accelerate Voortman’s top-line growth profile by expanding its distribution footprint to channels beyond F.D.M., notably convenience and dollar stores, as well as further penetrating existing distribution channels where Voortman’s distribution reach is below Hostess,” she said. “In particular, we expect Hostess to leverage its distribution footprint to expand Voortman’s distribution reach across food (74% ACV vs. Hostess at 93%), as well as c-store/drug (0.1%/3% ACV vs. Hostess at 89%/75%). From a geographic standpoint, Voortman generates 21% of its sales in Canada, which can facilitate Hostess’ expansion into this market. Long term, we see potential for Hostess to leverage Voortman’s capabilities to expand the Hostess brand to other product formats.”

An area of potential risk, Ms. Kaufman said, is a transition from Voortman’s independent distributor model to Hostess’ warehouse distribution model.

J.P. Morgan Securities L.L.C., New York, meanwhile, raised its price target to $18 from $17 and upped its earnings-per-share estimate for Hostess in fiscal 2020 to 78c from 76c. Hostess is expected to be one of the fastest-growing companies in J.P. Morgan’s coverage over the next two years, the research firm said.

“We like the deal and continue to view Hostess as an underappreciated growth story within consumer staples,” Kenneth Goldman, research analyst with J.P. Morgan, wrote in a Dec. 3 report. “Hostess has excellent organic revenue growth prospects ahead, a clear and effective business model, and bottom-line expansion well into the double-digit range each of the next couple of years (per our model).”

Moody’s Investors Service, New York, affirmed Hostess Brands’ corporate family rating at B1 and rating outlook at stable following announcement of the proposed acquisition.

“Hostess’ B1 corporate family rating reflects its high financial leverage, concentration in low-growth snack cakes category and moderate scale among consumer goods companies,” Moody’s said. “The rating also reflects Hostess’ well-known portfolio of snack cake brands, high profit margins, good cash flows and very good liquidity.

“The stable rating outlook reflects Moody’s expectation that Hostess will maintain its good operating performance and exceed $200 million of EBITDA next year. Moody’s also expects financial leverage to decline below 5 times within the next 12 months.”