Aramark Corp., in a deviation from its relatively small acquisitions in recent years, said Monday that it will spend $2.35 billion to buy two separate companies, one that manages $5 billion in purchasing for major hotel chains and a second that will expand Aramark's uniform-rental and linen-supply business in the United States and Canada.
The net cost of the two privately held companies, after anticipated tax benefits, is expected to be $1.9 billion. Philadelphia-based Aramark said it will issue debt to pay for the acquisitions, which are expected to be completed by the end of this year.
One company, Rockville, Md.-based Avendra LLC, manages purchases for 650 hospitality firms at more than 8,500 locations. Avendra — with a price of $1.35 billion — complements Aramark's 2016 purchase of HPSI, a group-purchasing firm for the health-care, hospitality, and higher-education sectors. Avendra employs 300 and has $140 million in annual revenue.
The second deal, for Minnetonka, Minn.-based AmeriPride Services Inc., which has annual revenue of about $600 million, will significantly increase the size of Aramark's uniform business. That unit had $1.56 billion in revenue in the year that ended on Sept. 30., 2016. AmeriPride employs 6,000.
"Either one of these deals alone would have been the largest in the company's 80-year history," Eric J. Foss, Aramark's chairman and chief executive, told analysts on a conference call.
Previously, Aramark's largest acquisition was the 2001 purchase of ServiceMaster's facilities-management arm for $800 million.
Foss' key focus during Aramark's latest (2013) reincarnation as a publicly traded company has been increasing its growth rate and operating margins. He told analysts that both acquisitions will increase Aramark's scale and generate cost-savings synergies totaling $110 million annually four years after closing.
Avendra is expected to continue operating as a standalone business while expanding outside hospitality into areas such as education and health care. Two-thirds of Avendra's purchases are for food and beverages, overlapping with much of what Aramark buys and increasing its leverage to negotiate lower prices.
The combination of AmeriPride with Aramark's uniform business is expected to result in drivers having more customers on their routes and other benefits that will reduce costs, Foss said.
Moody's affirmed Aramark's corporate credit rating at a sub-investment-grade level of Ba2, but changed the outlook to negative. That change "reflects the risk that financial metrics could remain weak for an extended period if integration, cost-benefit and debt-repayment goals are not met," Moody's senior credit officer Edmond DeForest said.