Aramark Holdings Corp (NYSE:ARMK), a global provider of food, facilities, and uniform services with principal offices in Philadelphia, Pennsylvania, plans to raise $779 million in its upcoming IPO on December 11th.
The firm will offer 36.3 million shares (including 23% insider shares) at an expected price range of $20.00-$23.00 per share. If the IPO can hit the midpoint of that range at $21.50 per share, ARMK will command a market value of $5.3 billion. See S-1
ARMK filed on September 9, 2013.
Lead Underwriters: Credit Suisse Securities LLC, Goldman Sachs & Co, J.P. Morgan Securities LLC, Morgan Stanley & Co LLC
Underwriters: Barclays Capital, BofA Merrill Lynch, PNC Capital Markets LLC, Rabo Securities, RBC Capital Markets LLC, Robert W. Baird & Co., Samuel A. Ramirez & Co, Santander Securities Corp, SMBC Nikko Securities America, The Williams Capital Group LP, Wells Fargo Securities LLC
Aramark is provider of food, facilities and uniform services operating primarily in North America, and has also expanded some services to 19 more countries. The firm provides services to diverse customers, serving 86% of the Fortune 500, some five million students at academic institutions, events for over 150 sports teams, and over 2000 healthcare facilities. ARMK had the second most total sales in North America in 2013 in food and facilities services and uniform services.
ARMK offers the following figures in its S-1 balance sheet for fiscal 2013:
Net Income: $70,366,000
Total Assets: $10,267,106,000
Total Liabilities: $9,363,399,000
Stockholders' Equity: $903,707,000
Though there is significant fragmentation in the services ARMK provides, meaning many competitors are smaller local and regional firms, ARMK also faces competition from large national firms similar to itself such as Cintas Corporation (NASDAQ:CTAS), G&K Services (NASDAQ:GK) and UniFirst Corporation (NYSE:UNF).
Joseph Neubauer has served as the Chairman of Aramark's board since 1984, and served as the firm's CEO for nearly 30 years. He also served as President from 1981 to 1997. He currently is a director of Verizon Communications Inc. and Macy's Inc. Mr. Neubauer is joined by current CEO and President Eric J. Foss, who has served in those roles since May 2012. Mr. Neubauer's total compensation for 2012 was $6,061,828 which we find very high for a company that did not see much growth between 2011 and 2012.
Mr. Foss served as CEO of Pepsi Beverages Company and as Chairman, President and CEO of The Pepsi Bottling Group. Mr. Foss serves on the board of UDR Inc. and CIGNA Corporation. Mr. Foss's total compensation was $7,379,520 in 2012 which we also find excessive given the company's performance.
We rate ARAMARK neutral at the current proposed range of $20 to $23. We are not impressed by the company's anemic growth rate and significant insider selling by the private equity firms that took this company private just a few years ago.
J.P. Morgan which is one of the large selling shareholders is also an underwriter. Investors should also review the many conflicts of interests between the current owners and the company on pages 138 and 139 of the S-1.
Prospective investors should also carefully review the potpourri of Risk Factors on pages 16 through 30 of the S-1.
However, the firm has significant name recognition (though much of this recognition no doubt stems from students who made their way through the firm's much-reviled school food offerings) and has established itself as a force in its industry.
The firm has made obvious commitments to improving its profitability both with product-specific practices, such as improved quality standards, portion control, and tightened labor management.
Aramark's experienced and excessively paid management team should continue to move this company forward.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.