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Aramark Holdings: Get to Know This Fresh IPO

Aramark Holdings (NYSE: ARMK  ) went public on Thursday at $20 per share, and the stock jumped 13.5% in its first day of trading. This is the third time the company has gone public, with the first two IPOs taking place in 1960 and 2001. The stock has continued to rise, so let's take a look at its financials to see if it should become part of your portfolio. 

The American giant
Aramark is a leading global provider of food, facilities, and uniform services to numerous industries. Its core market is North America, but it operates in an additional 19 countries and employs more than 272,000 people. The company has been recognized year after year as one of Fortune's most admired companies, and has also made the list of the National Business Group on Health's best employers and Ethisphere Institute's most ethical companies.

Source: Wikimedia Commons.

Whom does it serve?
In the prospectus filed with the Securities and Exchange Commission, Aramark detailed the following about who the company serves every day:

  • "We provide services to 86% of the Fortune 500 companies."
  • "We serve over 500 million meals annually to approximately 5 million students at colleges, universities, and K-12 schools."
  • "We service over 2,000 health care facilities, collectively representing over 75 million patient days annually."
  • "We cater to approximately 100 million sports fans annually through our partnerships with over 150 professional and collegiate teams."
  • "We put over 2 million people in uniforms each day."
  • "We operate in 22 countries in North America, Europe, Asia and South America."
The company is dedicated to increasing its global position through "selling excellence" and has noted that it will pursue strategic acquisitions. It is safe to say that Aramark is a crucial part of the United States' and the world's economies. Having the majority of Fortune 500 companies as its customers, along with universities, hospitals, and professional sports teams, shows that Aramark's revenue stream will be consistent over time and will benefit from overall economic growth. Additionally, the company will grow while operating ethically and treating employees like family, which is a recipe for success in any business. 

The financials
In the prospectus, Aramark also provided the financials for the last three fiscal years which ended in late September. Here's a breakdown of each year:

Metric FY 2013 FY 2012 FY 2011
Earnings per share $0.33 $0.49 $0.40
Revenue  $13.95 billion $13.51 billion $13.08 billion
Operating income $514.47 million $581.78 million $547.09 million
Diluted shares out 209.370 million 209.707 million 209.999 million 

Aramark is not showing intense growth, but I do believe it can find acquisitions to drive growth, while also buying back shares and increasing its earnings. It has a long history of great acquisitions, mainly in the uniform and facilities services industry, and this will likely be the area of focus. It also has one of the best management teams in the business, led by the great Eric Foss, so there's no doubt in my mind that the money raised by going public will be put to good use.

Whom should Aramark acquire?
Two companies that would complement Aramark's current businesses are G&K Services (NASDAQ: GK  ) and ABM Industries (NYSE: ABM  ) .

G&K is a leader in the branded uniform and facility services market in the United States and is the largest such provider in Canada. It currently commands a $1.2 billion market cap and has 170,000 customers in North America, which it serves through its 165 facilities. In its latest report, earnings grew 8.1% and revenue rose 3.1%, and the company provided positive guidance. 

I believe Aramark should acquire G&K to expand its presence and customer base, while becoming the largest uniform and facilities service provider in Canada. It could then implement its own methods to increase profitability and expand product offerings to G&K's current clients. 

Source: G&K Services.

ABM Industries is one of the largest facility management and services providers in the United States. Its service offerings include facilities engineering, commercial cleaning, energy solutions, HVAC, electrical, and landscaping, along with parking and security. ABM currently has a market cap of $1.5 billion and serves thousands of clients across the United States and in 20 international markets. 

In its latest release, EPS decreased 14%, but revenue rose 13.5%, driven by acquisitions and organic growth. Its buildings and energy solutions segment grew a strong 26.7% as more bundled energy solutions contracts were obtained. ABM would be a great addition to Aramark because of its broad offerings in the facilities services segment. Secondly, the strong growth in ABM's energy business would provide heightened growth to Aramark's energy and commissioning segment. Lastly, I believe ABM's motto of building value is an indicator of what it could do for Aramark.

The Foolish bottom line
Aramark is a global powerhouse and is a growing force in several industries. The company will continue to expand, whether through increased marketing or through strategic acquisitions. The stock has risen more than 18.5% since its IPO price, but I believe there is still plenty of room for it to run. Keep a close eye on this one and consider buying when you're comfortable. 

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