On Sunday, January 20, the 40-day SEC-enforced quiet period on underwriter research reports for Aramark Holdings Corporation (ARMK) comes to an end. ARMK's IPO was December 11.
The end of the quiet period allows ARMK's IPO underwriters to release research reports on the company into the market, likely leading to at least a temporary rise in the price of ARMK shares.
Since pricing at the low end of its expected range, at $20 per share, the stock has seen consistent--though unspectacular--gains; ARMK closed at $24.89 on January 14th. See our prior published article here.
The firm's extensive list of underwriters, including Goldman Sachs, Credit Suisse Securities, J.P. Morgan Securities, Morgan Stanley, BofA Merrill Lynch, RBC Capital Markets, PNC Capital Markets, Rabo Securities, Robert W. Baird, Barclays Capital, Samuel A. Ramirez, SMBC Nikko Securities America, The Williams Capital Group, Santander Securities Corp, and Wells Fargo Securities, will attempt to push the stock towards more rapid growth with a release of positive research reports on ARMK at the conclusion of the quiet period.
Our past three years of research, as well as results of recent academic studies, have led to empirical indications of a correlation between the number and reputations of a firm's IPO underwriters and a temporary increase in the price of shares at the end of the quiet period. For Aramark, this could mean its impressive roster of underwriters will play to its advantage as January 20th approaches.
The increase in the stock price typically begins to appear several days before the quiet period expires as experienced investors buy up shares in an effort to capitalize on the forthcoming research reports. These investors realize the underwriters may release mainly positive detailed research reports to their institutional and retail clients. Such early purchases generate a perception of demand, leading many times to a rise in the price of shares.
Aramark's Food Business For 5M College Students
Aramark is a leading North American provider of facilities and uniform services, and, especially, food services. The firm offers these services in an additional nineteen countries outside North America. ARMK serves a diverse customer base, ranging from an astounding 86% of Fortune 500 firms, to approximately five million students at colleges and K-12 schools. The firm provides services for over 150 professional and collegiate sports teams, and at more than 2000 healthcare facilities. In 2013, Aramark had the second highest total sales in North America in food, facilities, and uniform services.
Much of Aramark's competition comes from smaller local and regional firms, and the industries in which the firm is involved are generally highly fragmented. ARMK does face competition from some large firms that operate on a scale comparable to itself, including UniFirst Corporation (UNF), Cintas Corporation (CTAS), and G&K Services (GK).
ARMK benefits from its extremely experienced Chairman of the board, Joseph Neubauer. Mr. Neubauer has been Chairman since 1984 and served as ARMK's CEO for almost thirty years. He was also president of ARMK from 1981 to 1997. Current President and CEO Eric J. Foss has served in his positions since May 2012. He previously served as the CEO of Pepsi Beverages Company and as Chairman, CEO, and President of The Pepsi Bottling Group.
It should be noted that Mr. Foss and Mr. Neubauer both receive extremely generous compensation packages. In 2012 Mr. Foss's total compensation was $7,379,520, and Mr. Neubauer's total compensation was $6,061,828. Given the firm's relative lack of growth between 2011 and 2012, these figures seem somewhat excessive--despite the pair's impressive resumes and hard work for the shareholders.
What Should Investors Consider
ARMK's quiet but consistent growth since its market debut is more or less what was expected of the food and facilities giant. Its experienced management team should be able to propel it through the mediocre growth the firm has seen in recent years.
The expiration of ARMK's quiet period may provide a particularly meaningful short term boost to the stock price, given the company's growth, the firm's name recognition potential, and the lengthy list of underwriters attached to the IPO.