Seeking Alpha
IPOdesktop, IPOpremium (432 clicks)
Value, IPOs, long only
Profile| Send Message| ()  

Based in Philadelphia, PA, ARAMARK Holdings (ARMK) scheduled a $779 million IPO on the NYSE with a market capitalization of $5.3 billion at a price range midpoint of $21.50 for Thursday, December 12, 2013.

Nine operating company IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

SEC Documents:

Manager, Joint managers: Goldman Sachs, J.P. Morgan, Credit Suisse, Morgan Stanley, Barclays, BofA Merrill Lynch, RBC Capital Markets, Wells Fargo Securities.

Co-Managers: Baird, PNC Capital Markets, Rabo Securities, Ramirez & Co., Inc., Santander, SMBC Nikko, Williams Capital Group.

Summary

ARMK is a leading global provider of food, facilities and uniform services to education, healthcare, business and industry and sports, leisure and corrections clients.

On the negative side top line revenue growth is essentially flat. Gross margin is only 9%. For the fiscal year ended in September the trailing 12 months P/E is 45, which is high for a mundane business, and interest is 67% of operating earnings, which is not healthy.

Also, with an IPO price of $21.50 the immediate tangible book value dilution to IPO shareholders is -$41 and ARMK has -$560 million in accumulated deficits and losses.

On the positive side ARMK is large, has a relatively dominant market position, is currently profitable and has a low price-to-sales ratio of .4, which are enough positives to attract institutional investors who overlook the negatives outlined above.

Shareholders will be selling 22.2% of the total IPO.

Valuation

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Sept 12 months, 2013

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

ARAMARK Holdings

$4,945

0.4

45.0

3.0

-1.1

16%

Accumulated deficit

($501)

Accumulated other loss

($59)

Immediate per share dilution to new shareholders

($41)

Glossary

Conclusion
The rating on ARMK is barely positive based on the above analysis.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

ARMK is a leading global provider of food, facilities and uniform services to education, healthcare, business and industry and sports, leisure and corrections clients.

ARMK's core market is North America, which is supplemented by an additional 19-country footprint serving many of the fastest growing global geographies. ARMK holds the #2 position in North America in food and facilities services and uniform services based on total sales in 2013.

Internationally, ARMK holds a top 3 position in food and facilities services based on total sales in 2013 in most countries in which ARMK has significant operations, and are one of only 3 food and facilities competitors with its combination of scale, scope, and global reach.

Through ARMK's established brand, broad geographic presence and approximately 272,000 employees, ARMK anchors its business in its partnerships with thousands of education, healthcare, business, sports, leisure and corrections clients.

Through these partnerships, ARMK serves millions of consumers, including students, patients, employees, sports fans and guests worldwide.

Competition

In ARMK's FSS North America segment, its external competitors include other multi-regional food and support service providers, such as Centerplate, Inc., Compass Group plc, Delaware North Companies Inc. and Sodexo SA.

Internationally, ARMK's external food service and support service competitors include Compass Group plc, Elior SA, International Service System A/S and Sodexo SA. ARMK also faces competition from many regional and local service providers.

5% stockholders

GS Capital Partners 21.01%

CCMP Capital Investors 10.50

J.P. Morgan Partners 10.50

Thomas H. Lee Partners 21.01

Warburg Pincus LLC 21.45

Joseph Neubauer 10.16

Use of proceeds

ARMK itself expects to net $561.9 million from its IPO. Shareholders will be selling 22.2% of the total IPO. Proceeds are allocated as follows:

Repay $411.9 million of the outstanding term loans due July 26, 2016 under ARMK's senior secured credit facilities. The proceeds from these term loans in December 2012 were used primarily to repay about $650 million of existing term loans with a maturity date of January 26, 2014 and related discounts, fees and costs.

Repay $150 million of outstanding borrowing under the revolving credit facilities constituting part of ARMK's senior secured credit facilities.

Disclaimer: This ARMK IPO report is based on a reading and analysis of ARMK VLP's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Aramark Holdings