Philadelphia-based food service and facilities management company Aramark Corp. has agreed to a $6.3 billion buyout offer. Led by current Aramark CEO Joseph Neubauer, the investor group also includes corporate officers from Goldman Sachs Capital Partners, CCMP Capital Advisors, and 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.
Company spokesperson Debbie Albert says that Aramark’s current board of directors, acting on the advice of a special committee comprised of independent directors, has approved the agreement, and recommends that Aramark’s stockholders approve the proposed merger. The transaction is expected to be completed by year’s end or in early 2007. The company will have to file a preliminary proxy statement with the FCC, followed by a definitive one, and then the results will be mailed to shareholders for final approval. “That will take some time,” Albert says.
The day after the buyout was announced, Aramark reported sales of $2.93 billion for the third fiscal quarter of 2006, a 5% increase over last year. But net income plummeted more than 50%, to $34.9 million, down from $71.3 million last year. 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%. For the three months ended June 30, the direct division had sales of $96.9 million, down from last year’s $100.8 million. The company would not comment on what the deal means to the direct marketing division, which has been under review due to its declining sales.
David Solomon, managing director for New York-based investment banking firm Goldsmith Agio Helms, says the company’s uniform business accounts for 14.2% of sales; 4.5% of its total sales are direct uniform-related. It’s certainly possible that Aramark could sell the direct division, he says, “given the difference between the food service and uniform businesses that 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.”