Last week, Aramark Holdings Corporation (Aramark Holdings) filed registration papers with the Securities and Exchange Commission (SEC), for an initial public offering (IPO) of 36.25 million shares of its common stock.
Aramark Holdings is presently the privately held holding company that acquired all of the shares of, then publicly listed, business services company the Aramark Corporation (Aramark), in January 2007 and took it private at that time. This new offering will, remarkably, in fact be the third time in its history that Aramark has come to the market as an IPO.
Two out of those three occasions will have been masterminded by its Chairman, Joseph Naubauer, now 72, who was the CEO of the company for twenty nine years years before handing over the reins to Eric Foss, who was brought in from PepsiCo. last year to provide some younger blood and prepare for an ultimate succession.
The initial public offering price this time is currently expected to offer shares at a price between $20.00 and $23.00 per share, which will if successful result in a total offering size of between $725 million and $834 million gross, i.e. before the underwriters fees and costs of the issue.
A total of 28 million new shares are being offered from treasury by Aramark Holdings itself; another 8.25 million shares are also being offered, by certain of the existing stockholders.
In addition, the underwriters have been granted an option to purchase up to an additional 5, 437, 500 existing shares belonging to some of the existing shareholders, as an underwriters overallotment.
If the offering is successful Aramark will list its common stock on the New York Stock Exchange under the symbol “ARMK”.
The usual suspects – Goldman Sachs, J.P. Morgan, Crédit Suisse and Morgan Stanley are the lead underwriters, or “joint book runners” as they are rather quaintly called in the US. The first two are also significant shareholders in the company on their private equity desks, reflecting some of the symbiotic elements of many of Wall Streets major transactions.
The sale is for about 10 percent of the company’s shares. If the IPO attracts buyers at the top of the expected range Aramark would then have a market capitalization of its stock, with almost 230 million shares then outstanding, of about US$5.3 billion. With another US$5.8 billion in debt in the balance sheet this would imply a total enterprise value of around US$11 billion this time around.
One of the most admired profit strategies for US private equity players, something akin to the plays that coaches set up for their professional football teams, is to take a company public at the top of a business cycle and then maybe buy it back again later at the bottom of the next one. Since you already know the business there are fewer risks to worry about is the theory.
Of course this is very hard to execute, and sometime it can go badly wrong with completely the opposite result;- buying at what turns out to be the top in a frenzied wave of corporate deal making. Then when things all come crashing down, as happened at the end of 2007 for example, having to wait it out with a much longer hold period before the firm concerned can, hopefully, at least get their money back the next time around, and finally even turn a profit.
A variation of the approach is to finance management in a privatization at what you think is the bottom of a cycle, or when the business is just struggling with poor operational performance, and then take it all public again later when either times are better or the business itself has recovered.
Both versions of the games have been played by Wall Street countless times, as business cycles come and go.
Not too many people have take the same company public more than once, though, which is really quite exceptional but Joseph Neubauer seems to be on the cusp of doing just that now with Aramark. And, in between, he was able to privatize the company as well, in January 2007, demonstrating exquisite timing just before the crash that arrived with a vengeance a few months later.
Aramark is an American foodservice, facilities management, and clothing provider supplying businesses, educational institutions, sports facilities, federal and state prisons, and health care institutions all over the world. It is headquartered at its own Aramark Tower in Center City Philadelphia.
With revenues of over US$13 billion in 2012, as a service business it is highly labour intensive, and has over 272, 000 employees scattered around the world in 22 different countries. As such Aramark is actually listed as the 23rd largest employer in the entire Fortune 500 even though it is only number 205 by revenues.
In 1960, by contrast, the year Aramark first went public it had revenues of only $37 million revenue, when its business then was just dealing with vending machines in factories.
About Joseph Neubauer
Joseph Neubauer became Aramark’s CEO in 1983 after joining the company a year earlier. He immediately showed his mettle a year later fending off a hostile takeover of ARA, as it was then called, by organizing an investment group to take it private just in time.
After a number of years spent building the company up he took the company public for a second time in its history, in 2001. Then Neubauer again took the company private in January 2007, with superb timing at precisely the top of the market and just before the financial crisis, selling 85 percent of the company’s shares to a collection of blue chip private equity groups. These included Goldman Sachs, JPMorgan, Thomas H. Lee and Warburg Pincus.
That particular buyout left Aramark with a good deal of the debt which presdently is outstanding on its balance sheet. At the mid range of the expected price of this new share offering the company would receiver about US$602 million gross, for the shares which are to be sold from treasury. After about US$40 million of underwriters’ costs and expenses of the offering, US$561 million of the proceeds of the offering would then be ear marked to pay down some of the company’s debt – or about ten percent of the total debt.
All the way through his career Neubauer has said he has never focused on the amount of the debt he was placing on his company, but more on the company’s abilities to generate sufficient cash flow to service it with plenty of margins of safety. Fair comment, though current debt levels do leave analysts divided of those who have commented publicly on the offering, it seems.
The apparent schizophrenia over the public company versus private company question has been apparent, too, in Neubauer’s career, as it has recently in the case of Michael Dell as well for example.
As a private company one does not have to bear the same level of scrutiny as in a public company environment. On the other hand all your managers, to whom you have given shares in the private vehicle to motivate them, eventually seek the greater valuations one can obtain in the context of a public context than one typically gets in a private company.
With this new IPO, Joseph Neubauer is selling a few of his own existing shares for about US$31 million, before any shares that might be exercised in the underwriters’ overallotment which could net him a further around US$23 million.
Neubauer though will then still be left with a 7.87% holding in the company, likely to be worth now over US$400 million. Not bad for a day’s work, and remember, too, he likely cashed in the last time as well all the way back in 2001.
Joseph Neubauer was born in Israel in 1941 and came to America as a teenager at the age of fourteen. He worked his way through college and received his undergraduate degree from Tufts University and his MBA from the University of Chicago.
He joined Aramark after a career in banking at Chase Manhattan Bank and with PepsiCo where he had served as Senior Vice President of PepsiCo’s Wilson Sporting Goods Division and as Vice President and Treasurer of the parent company, PepsiCo, Inc. as well.