Aramark is the world leader in the delivery of professional services, providing award winning food service, facilities management and uniform apparel for health care institutions, universities and school districts and stadiums and arenas..
In August of 2006, company Chairman and Chief Executive Officer Joseph Neubauer assembled a group of institutional investors to engage in a leveraged buyout of the firm.
The group, which included Goldman Sachs Capital Partners, CCMP Capital Advisors, JP Morgan Partners, Thomas H. Lee Partners and Warburg Pincus LLC, purchased the outstanding stock of Aramark for $8.3 billion.
The buyout group also assumed $2 billion in outstanding debt and added an additional $4.5 billion in acquisition debt.
Aramark’s growth at the time of the buyout had stagnated. The buyout group perceived an opportunity to allocate more resource to the building of the food service business.
The uniform business was not viewed as a growth component, causing many observers to speculate the Aaramark would shed that asset to make more growth capital available to the food service segment.
The expectation is that the partners in the buyout will return the company to the public equity market at some point when the company has grown.
In the company’s quarterly financial statement release, Aramark reported that income for the first quarter of 2009 declined from $3.351 billion in the comparable period for 2007 to $3.173 billion. Operating income declined from $166 million in 2007 to $136 million this year, and net income experienced a steep decline to just over 8 million from $26 million.
Standard & Poor’s has revised its outlook for the company from positive to stable. The previous positive outlook was in part predicated on the belief that the company would strengthen its credit protection measures. S&P now expects the company to maintain the measures at their current level for the near term.
S&P had also expected improvement in Aaramark’s leverage ratios to not over 5 times. The leverage ratio is now at 6. The rating agency also noted that Aaramark is maintaining a high level of liquidity, which should be a positive in current macroeconomic conditions.
Aaramark’s bonds are actively traded in the public markets. The company’s bonds due in 2015 carrying a rate of interest of 8.5% are currently trading at a price of 86.25, generating a yield to maturity of 11.8%. Callable in 2011 at 104.25, the bonds at this price would result in a yield of 10.5% if called.
While there is no public equity available to investors, Aaramark bonds offer strong returns with minimal risk.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
