Aramark few days ago announced that it intends to separate its uniform services division into a separate publicly traded company.
The spinoff of Aramark Uniform Services (AUS) is expected to occur by the end of 2023, a statement said. It will be tax-free for Aramark and its stockholders.
”Substantial improvements across the Company—including culture, organization, strategy, client, and customer service—and a program of selective, targeted investments, have enabled us to materially improve our growth trajectory,” said John Zillmer, Aramark’s Chief Executive Officer. “Kim Scott, who joined in October 2021 as President and Chief Executive Officer of AUS, and her team have developed a compelling strategic framework and vision for AUS. We believe that Aramark and AUS can best execute their respective value-creating strategies operating as two independent, publicly traded companies.”
Strategic Rationale
As stated during Aramark’s Analyst Day in December 2021, the Board of Directors and Aramark management team periodically assess the business portfolio to further enhance performance with an ongoing commitment to drive stockholder value.
Given the improvements made to each of the two businesses over the last two years, the company believes that both are now well-positioned to prosper on their own, and that the separation will allow each business to achieve better results.
Aramark sees the following benefits from separation:
- Allowing each stand-alone company’s executive leadership and board of directors to focus completely on their own businesses
- The capacity to attract and keep strong personnel is enhanced by each company’s restricted focus and ability to compensate employees with equity incentives tied entirely to its own performance.
- Each company’s acquisition strategy will be aided by the availability of equity tied directly to its unique business.
- Flexibility in capital structure optimization and capital deployment priorities
- The ability of the financial community to value each business separately, which the company anticipates will result in optimal total stockholder returns.
Aramark
Aramark will remain an established worldwide leader in food and facilities services, with world-class scale and capabilities focused on servicing clients across 19 countries in five primary sectors: education, sports, leisure & corrections, healthcare, business & industry, and facilities & other.
Aramark reported pre-COVID annual revenues of $13.6 billion through its two food and facilities reportable segments – United States and International. Since then, the Company has taken steps to improve its leadership, culture, and growth strategy, which have already begun to yield higher revenue and operating efficiencies. With favourable outsourcing trends, Aramark operates in an attractive and increasing addressable market with an estimated $500 billion in revenue across its target markets and core business portfolio.
In fiscal 2021, Aramark food and facilities achieved record net new business performance—nearly five times higher than the historical five-year average—reflecting new business wins over $1 billion and retention rates of approximately 96%. Aramark expects to build on this momentum in fiscal 2022 and beyond.
After the completion of the proposed spin-off, John Zillmer will continue to serve as Chief Executive Officer of Aramark following his return in October 2019, and Tom Ondrof will remain as Chief Financial Officer of Aramark after joining in January 2020.
Aramark Uniform Services
Aramark Uniform Services offers full-service rental programmes to its customers, resulting in a lucrative contracted and recurring income stream. A large geographic footprint in the United States and Canada serves the customer base, with programmes focusing on uniforms, floor mats, towels, linens, managed restrooms, and first aid.
The anticipated $40 billion revenue market offers significant room for expansion. Aramark Uniform Services’ pre-COVID yearly revenues were $2.6 billion, with its fiscal second quarter fiscal 2022 performance exceeding the pre-COVID second quarter fiscal 2019 timeframe.
Kim Scott will lead the independent public company as Chief Executive Officer. Newly appointed Rick Dillon will serve as Chief Financial Officer. The leadership assembled has extensive industry experience, in addition to transaction-related and spin-off expertise. The Company is recruiting a strong and committed Board of Directors able to effectively support AUS management and advance the interests of all stakeholders.
“I am honored to lead the Aramark Uniform Services team forward, and we are all excited to fully develop the great opportunities before us.” said Scott.
“Since October, our team has developed a plan to deliver a step change increase in organic revenue growth and margin. By capitalizing on our recent investments, and modernizing our approach to customer relationship management, we expect to substantially increase the performance of our business. I am especially energized by our amazing frontline team who are committed, tenured, and passionate about delivering an outstanding experience for our customers. We are grateful to all of our teammates for all they have done and will continue to do to ensure we reach our full potential as a company.”
*Pre-COVID level reflects performance compared to the same period in fiscal ’19
Capital structure
As stated during the Company’s Analyst Day, Aramark is dedicated to its capital allocation strategy and deleveraging targets. Following the spin-off, it is also projected that the aggregate regular stockholder dividend will remain consistent with previous payments.
Aramark Uniform Services plans to issue debt in order to pay a one-time cash dividend to Aramark, which will be used to pay down existing Aramark debt.
Aramark may also reduce a portion of its current debt by exchanging outstanding Aramark debt securities for Aramark Uniform Services debt securities. Both companies are committed to keeping their balance sheets strong, with leverage ratios below 3.5x, while optimising financial flexibility with capital structures tailored to their respective growth opportunities and cash flow profiles.
Transaction details
For US federal income tax reasons, the spin-off is projected to be tax-free for Aramark and its stockholders. The deal is subject to certain usual conditions, including final Aramark Board of Directors approval, receipt of a favourable opinion and Internal Revenue Service ruling on the transaction’s tax-free character, and the receipt of other regulatory clearances. There can be no guarantee that the proposed transaction will be finalised or when it will be completed.
Financial advisors include Goldman, Sachs & Co. LLC and J.P. Morgan Securities LLC. Legal counsel is provided by Wachtell, Lipton, Rosen and Katz.
About Aramark
Aramark proudly serves the world’s leading educational institutions, Fortune 500 companies, world champion sports teams, prominent healthcare providers, iconic destinations and cultural attractions, and numerous municipalities in 19 countries around the world with food, facilities, and uniform services. Because our culture is rooted in service, our employees strive to do great things for each other, our partners, our communities, and our planet. Aramark ranked No. 1 In the Diversified Outsourcing Services Category on FORTUNE’s 2022 List of ‘World’s Most Admired Companies’ and has been named to DiversityInc’s “Top 50 Companies for Diversity” list, the Forbes list of “America’s Best Employers for Diversity,” the HRC’s “Best Places to Work for LGBTQ Equality” and scored 100% on the Disability Equality Index.
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