ServiceMaster Gets Bid From Clayton-Dubilier, Bain
Clayton, Dubilier & Rice Inc. is preparing one offer, and Bain Capital LLC has formed a group with private-equity firms to make another bid, said the people, who declined to be identified because an agreement hadn't been reached. Final offers for the owner of TruGreen ChemLawn and Terminix pest control are due this month, the people said.
ServiceMaster, based in Downers Grove, Illinois, hired Morgan Stanley and Goldman Sachs Group Inc. to advise on its strategic alternatives and said November 28 it would consider a sale. ServiceMaster's cash flow and lagging share price have attracted buyers who intend to borrow money to acquire the company, then lower costs and sell it back to the public.
``Private-equity firms and their lenders are looking for comfort that the debt can be paid back,'' said Tom Burnett, director of research at Wall Street Access in New York. ``Stable cash flow and operating income is what buyers are looking for, especially in markets as jumpy and jittery as these.''
Shares of ServiceMaster, the biggest U.S. lawncare company with a stock market value of $3.87 billion, fell 12 cents to $13.27 yesterday in New York Stock Exchange composite trading. The stock was up 1.2 percent this year through yesterday. Shares of Toronto-based FirstService Corp., which competes in lawncare, was up 4.8 percent this year.
ServiceMaster's income from continuing operations increased 3.3 percent to $186.6 million as sales rose to $3.4 billion. The company's businesses generated net cash flow of $289 million last year, up from $243 million in 2005.
Buying Up
Buyout firms like Clayton Dubilier and Bain often buy companies many times the size of their investment funds by borrowing money secured by their targets' assets. They usually sell their investments within five years.
ServiceMaster's shares declined 5.5 percent in the past five years, compared with a 20 percent gain on the Standard & Poor's 500 index. After the company announced it was seeking buyers, its shares jumped 11 percent, their biggest one-day gain in 21 years.
Founded as a moth-proofing company in 1929, ServiceMaster has built a network of more than 5,500 sites offering services spanning termite extermination, carpet cleaning and landscaping.
Clayton Dubilier spokesman Thomas Franco declined to comment, as did Bain's Alex Stanton. Telephone calls to ServiceMaster executives, including two to spokesman Steve Bono, weren't returned.
Recruiting Executives
Founded in 1978, Clayton Dubilier has invested more than $6.5 billion in equity in 39 U.S. and European businesses. The firm, with offices in New York and London, has experience with multi-location businesses, including Kinko's Inc., which it sold to FedEx Corp. in 2004 for $2.4 billion.
Clayton Dubilier recruits executives who have run companies to be so-called operating partners and help with investments. George Tamke, the former vice chairman of Emerson Electric Co., joined the firm in 2000 and served as chief executive and chairman of Kinko's prior to the FedEx sale.
The firm last year hired Charles Banks, the former chief executive officer of Wolseley Plc, the world's biggest distributor of plumbing and heating equipment. Jack Welch, the former CEO of General Electric Co., is a special partner at the firm.
Bain, started in 1984 by former Massachusetts Governor Mitt Romney, has led investments in Dunkin' Brands Inc. and Domino's Pizza Inc. The Boston-based firm has raised nine private-equity funds and invested in more than 200 companies. Bain has about $40 billion in assets under management.