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Aramark Serves Up an IPO Filing

The food service provider is coming back to the public markets


Food services operator Aramark Holdings has filed for an IPO. The company plans to list on the NYSE (the ticker has not be selected yet), and the lead underwriters include Goldman Sachs (GS), J.P. Morgan (JPM), Credit Suisse (CS) and Morgan Stanely (MS).

Founded in 1959, Aramark is now one of the world’s largest providers of food, facilities and uniform services. Its customers include 84% of the Fortune 500, and the company serves more than 500 million meals each year, and puts more than 2 million people in uniforms each day. While a big part of its sales come from the U.S. market, Aramark also has a footprint in 22 countries across Europe, Asia and South America.

In early 2007, Aramark went private in a $8.3 billion transaction, which included top private equity sponsors like GS Capital Partners, CCMP Capital Advisors, JPMorgan Partners, Thomas H. Lee Partners and Warburg Pincus LLC. In fact, about 250 senior management personnel participated in the acquisition.

But after the financial crisis in 2008 — which led to a deep recession — it was tough to get much traction. From 2010 to 2012, overall sales increased by only 8.7%.

In an attempt to jump-start the company, Aramark hired Eric Foss as its CEO in May 2012. He was the former CEO of Pepsi Beverages and has wasted little time since coming on board. For example, he snagged new clients like Airbus, the Ohio and Michigan departments of corrections, American University, the Minnesota Vikings, the Chicago Bears, and the Tampa Bay Buccaneers.

But perhaps the most effective part of Foss’s strategy has been cost reductions. He has launched efforts for SKU rationalization, portioning, waste control, enhanced labor scheduling, turn-over reduction and SG&A discipline. Because of those efforts, Aramark has continued to generate strong cash flows. Last year, adjusted EBITDA came to $1.136 billion — up from $1.100 billion in 2011.

Aramark has some huge opportunities in front of it. In North America, the addressable market for food and uniform services is about $900 billion. In fact, with the general trend towards outsourcing, this should be a further boost for the company.

But the biggest potential is in emerging markets. As should be no surprise, Aramark has seen lots of growth already — during the past five years, the annual sales rate was 14%. But keep in mind that international sales only make up 28% of overall sales. In other words, the company is just scratching the surface of this opportunity.

If Foss can continue providing strong leadership while pushing deeper in to those emerging markets, there could be bright days ahead for Aramark.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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