Shares of Aramark (NYSE:ARMK) are expected to price and become publicly traded once again this week. The company is a leader in food, facilities, and uniform management in North America. The company's three strong business sectors offer several opportunities for expansion, which may justify a high IPO pricing.
Aramark shares are expected to price in a range of $20 to $23. The company is offering a total of 36.25 million shares in its IPO, with 28 million from the company and 8.25 million from existing shareholders. After the offering, there will be 229.84 million shares outstanding.
Aramark provides foods, facilities management, and uniforms to a variety of businesses in the education, healthcare, business, sports, leisure, and correctional facilities sectors. The company currently has the number two position in North America and ranks among the top three in almost every international territory it has business in. Here are some telling statistics from the company:
· Provides services for 86% of Fortune 500
· Serves 500 million meals to 5 million students annually
· Services 2,000 healthcare facilities annually
· Partners with over 150 professional sports teams
· Provides 2 million uniforms to businesses
· Operations in 22 countries
Aramark operates under three business segments. Here is a look at those segments:
Food and Support Services North America
Food and Support Services International
% of Aramark Sales
Operating Income 2012
% of Aramark Op. Income
Canada, Mexico, United States
United States, Puerto Rico, Canada, Japan
As you can see, the majority of Aramark's sales and operating income come from its presence in the food and service sectors in North America. However, international sales are growing and Aramark continues to increase its market share abroad. The company lists China, Chile, Germany, Ireland, Japan, Spain, and the United Kingdom as areas with a strong presence. Aramark has a top three market share in all these regions except Spain.
Sales in the last fiscal year were split as follows:
· Business and Industry: 41%
· Education: 26%
· Healthcare: 17%
· Sports & Leisure: 12%
· Corrections: 4%
Aramark listed the following as strengths in its offering:
· Leader in a large, fragmented and growing market
· Favorable geographic, sector and service mix
· Longstanding client relationships (94% retention, average relationship 10 years)
· Improving profitability with significant cash flow generation
· Experienced management team
Strategies for Aramark going forward include:
· Drive incremental revenue from existing clients
· Increase client retention rates
· Expand new business through selling excellence
· Pursue strategic acquisitions
· Accelerate margin expansion through operational excellence
My biggest growth observations for the company revolve around cross-selling and emerging markets. The company says only 11% of clients use both food and facilities service. While not all clients need both of these services, I believe this number can increase with better customer relationships and more aggressive pricing. The company did note in its offering that it had secured a couple of new deals from existing customers through strong relationships.
Aramark currently operates in 7 countries that it considers emerging markets. These countries made up 8% of the company's sales, a number I believe will be much higher in 2013 and 2014 financial results. China saw sales growth of 27% in the most recent year. Aramark also has strong market positions of #2 in Chile and #1 in Argentina. By taking its uniform business to new international markets or acquiring small uniform operators in countries with existing strong market shares, Aramark could also boost its smaller, but high-margin uniform business division.
Back in 2006, Aramark was taken private for $6.3 billion. This marked the second time in 22 years that the giant foodservice and facilities provider had seen a buyout and a de-listing from the exchanges. Since that time, the company has picked up new clients and seen market shares expand across its five business sectors. Of particular note is the hiring of Eric Foss as CEO in 2012. Foss comes to Aramark from Pepsi (NYSE:PEP), where he served as the CEO of Pepsi Bottling Group and CEO of Pepsi Beverages Company. With Foss's extensive service in the food industry, he is making the right strides to helping boost sales at Aramark and is a great name to lead the future.
So far in 2013, Aramark has picked up new clients like Ohio Department of Corrections, Michigan Department of Corrections, Minnesota Vikings, Chicago Bears, and Tampa Bay Buccaneers. While there are risks with major dilution and possible share offerings down the road, this is a company to watch going forward. If shares don't price at full range or fall in their debut, I would be a buyer of Aramark for its potential international growth and expansion in categories like education and healthcare.
The information contained in this article was from research done from Aramark's retail roadshow.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ARMK over 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.