Aramark Opts To Go Private

Target: Aramark Corp.

Sponsors: Joseph Neubauer, GS Capital Partners, CCMP Capital Advisors, Thomas H. Lee Partners, Warburg Pincus

Purchase Price: $8.3 billion

Financial Advisors: Sponsors: Goldman, Sachs & Co., J.P. Morgan Securities Inc., Sellers: Credit Suisse Securities (USA) LLC

Legal Counsel: Sponsors: Simpson Thacher & Bartlett LLP, Sullivan & Cromwell LLP, Wachtell Lipton Rosen & Katz; Sellers: Shearman & Sterling LLP

Publicly-traded food and services giant Aramark Corp. has agreed to be taken private by a consortium of private equity firms for $8.3 billion, including the assumption of about $2 billion in debt. Aramark’s Chairman and CEO, Joseph Neubauer, is leading the buying team—which includes GS Capital Partners, CCMP Capital Advisors (FKA: JPMorgan Partners), Thomas H. Lee Partners and Warburg Pincus.

The buyers originally expressed their interest in taking Aramark off of the New York Stock Exchange—where it trades under ticker symbol “RMK”—in May, when the group made a $32-per-share bid for the Philadelphia company. The current agreed-to price values each share at $33.80.

Aramark’s board of directors has approved the current deal and will recommend that stockholders do the same. But resistance to the sale could potentially come from Aramark’s second-largest outside shareholder, New York hedge fund Eminence Capital, which said in early May that the company was worth at least $40 per share. Eminence currently owns about 9.2% of Aramark’s Class B shares.

Citigroup analysts, in a note from mid-May, pegged Aramark’s value between $35 and $36 per share.

But the fact that the buying team includes Aramark management bodes well for the chances that the deal will close at its current terms. “[Neubauer] has been at the helm since 1983, and has been on the board since 1979, and in some respects is seen as being Aramark,” according to a research note written by Citigroup Analyst Leone Young.

His presence also serves as a deterrent for competing PE bids, since any rival consortium would lack his intimate knowledge of Aramark’s prospects, not to mention the possibility of having to run the food services company with a new core management team. “The asymmetric information advantages he holds causes us to conclude there is a low probability of a competing offer emerging,” Young penned.

Seventy-year-old Aramark has come a long way since its founding as a small vending machine company focused on serving California’s aviation industry. Today about 86% of Aramark’s nearly $11 billion in annual revenues is generated from providing food and facilities management services to customers in the business, education, healthcare, government, and sports and entertainment fields. The remainder comes from the company’s uniform rental and sale business. With approximately 240,000 employees, Aramark serves clients in 19 countries.

Neubauer’s legend with Aramark has its roots in 1984, when he fought off a Drexel Burnham Lambert-funded hostile takeover attempt, opting instead to consummate a home-baked MBO of the company. To facilitate the move, Neubauer mortgaged his house, took out a personal loan, and amassed an army of 70 other executives to keep the raiders at bay. “I felt an obligation to the people who worked with me,” he told BusinessWeek in a 2002 interview. “We wanted to control our destiny.”

Each party in the latest public to private, including Neubauer, will reportedly take a 20% stake in the company. JP Morgan Chase Bank N.A., J.P. Morgan Securities, Inc. and Goldman Sachs Credit Partners L.P. will provide debt financing for the deal.

The buying consortium does have substantial experience in food and food-related industries, though not necessarily on the same scale as Aramark. JPMorgan Partners has already realized its investment in Specialty Meat Group and is the current owner of Quiznos. Warburg Pincus is currently an investor in Radhakrishna Foodland, a Mumbai, India-based provider of logistics and value-added services to food service operators and retail stores, while TH Lee currently holds Michael Foods Inc., which it reportedly put on the auction block.

Aramark tapped Credit Suisse Securities (USA) LLC to serve as advisor, while Shearman & Sterling LLP served as legal counsel to the special committee.

The buy-side enlisted Goldman, Sachs & Co. and J.P. Morgan Securities Inc. for financial advice, while Simpson Thacher & Bartlett LLP, Sullivan & Cromwell LLP and Wachtell, Lipton, Rosen & Katz are looking out for their legal interests. —A.N.