Buyout for Aramark

Aramark Corp., the food services and facilities management firm that also owns a $425 million-plus direct division, has agreed to a $6.3 billion buyout offer. The deal will take the publicly held company private.

Led by Aramark CEO Joseph Neubauer, the investor group includes corporate officers from Goldman Sachs Capital Partners, CCMP Capital Advisors, J.P. Morgan Partners, Thomas H. Lee Partners, and Warburg Pincus. The deal is valued at approximately $8.3 billion, with the additional $2 billion to be put toward the repayment of outstanding debt.

Debbie Albert, spokesperson for Philadelphia-based Aramark, says that that the company’s board of directors, acting on the advice of a special committee of independent directors, has approved the agreement and recommends that Aramark’s stockholders do the same. The transaction is expected to be completed by early 2007, if not by the end of the year.

The day after the Aug. 8 announcement of the buyout, Aramark reported sales of $2.93 billion for the third quarter of fiscal 2006, a 5% increase over the previous third quarter. But net income plummeted more than 50%, to $34.9 million from $71.3 million a year ago. And sales from its direct marketing business, which includes the Galls catalog of public-safety equipment, the WearGuard workwear brand, and uniforms marketer Crest, fell 3.3%, to $96.9 million. The division posted an operating loss of $3.0 million for the quarter, compared with operating income of $2.6 million for the comparable quarter of last year.

The company would not comment on what the deal might mean to the direct marketing division, which has been under review due to its declining sales. For calendar-year 2005, the division’s sales were $427.4 million, down 2.5% from $438.4 million in calendar-year 2004 and down more than 4% from $446.2 million in calendar-year 2003.

It’s certainly possible that Aramark could sell the direct division, says David Solomon, managing director for New York-based investment banking firm Goldsmith Agio Helms. “Given the difference between the food service and the uniform business, they could split the two apart. They don’t necessarily reinforce each other. There may be a synergy there, but it also might make more sense to sell it. There has been a lot of consolidation in the uniform business.”

Prior to the deal, Solomon says Aramark was trading at about $28 per share; the buyout price was $33.80 per share. “The enterprise value multiple of trading was at 7.4 times on the public market,” he says. The value of the transaction equity buyout is 8.8 times, which is “nothing all that earth shattering” in terms of valuations in the private marketplace, he notes. “We see that all the time with private equity firms. What’s interesting is the public markets would typically have a higher value than private markets. We have a valuation inversion in this instance.”

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