Compass takes initial bids for US laundry divest, sources say
19 JUN 2018
UK-based Compass Group [LON:CPG] recently collected first-round bids for the laundry services business of its US subsidiary Crothall Healthcare, said two sources briefed on the matter.
Last month, this news service reported that Compass was working with Houlihan Lokey on the divestiture. Wayne, Pennsylvania-based Crothall was reported to be marketing the laundry services unit off approximately USD 30m in EBITDA and USD 250m in turnover.
The divestiture comes amid other laundry services companies actively exploring sales. Family-owned healthcare laundry specialist ImageFIRST is considering a sale through Stephens, this news service reported. PureStar Linen Group was also reported to be on the market alongside financial advisor Moelis.
The sources suggested potential suitors could look to roll up Crothall’s divestiture and ImageFirst. ImageFIRST, which reportedly generates around USD 20m in LTM EBITDA, serves customers in such fields as outpatient radiology, cardiology and urology, general practitioners and hospitals. Crothall serves healthcare facilities and luxury hotels and resorts.
The Crothall divestiture presents a good roll-up opportunity for potential buyers, especially in the Chicago area where it already has a large presence, said a sector advisor.
The Crothall divestiture presents a good roll-up opportunity for potential buyers, especially in the Chicago area where it already has a large presence, said a sector advisor.
The advisor classified Crothall as the “800-pound gorilla” in the space with predictable recurring revenue from three- to seven-year hospital contracts. The advisor suggested Crothall could fetch a multiple of 9x EBITDA or higher, noting that prospective buyers will likely look to leverage the unit’s large distribution footprint. According to the Crothall website, the company’s 48 facilities process laundry for more than 1,300 customers throughout North America.
The Crothall unit may, however, be adversely affected by hospital system consolidation, a trend that typically leads to contract cuts, said the first source. The source estimated the unit’s growth is in the low single-digit range, noting that the business requires significant capital expenditure. As such, the source projected the business would trade for a multiple in the 5x-8x EBITDA range.
Compass could look to KKR’s USD 125m acquisition of healthcare linen management services provider Angelica, as a potential comp for its divestiture, said the sector advisor. The advisor suggested UniFirst’s [NYSE:UNF] USD 122m acquisition of Arrow Uniform as another comparable transaction. Terms were not announced for either deal.
Compass could look to KKR’s USD 125m acquisition of healthcare linen management services provider Angelica, as a potential comp for its divestiture, said the sector advisor. The advisor suggested UniFirst’s [NYSE:UNF] USD 122m acquisition of Arrow Uniform as another comparable transaction. Terms were not announced for either deal.
Potential strategic bidders for the Crothall unit include Sodexo [EPA:SW] and Aramark [NYSE:ARMK], according to the advisor. The advisor pointed to Wellspring Capital as a logical private equity bidder. Earlier this year, Wellspring acquired SupplyOne, a distributor and maker of packaging products for consumer, manufacturing, ecommerce and healthcare markets.
Mergermarket previously reported that Stericycle [NASDAQ:SRCL] and Cintas [NASDAQ:CTAS] could also take an interest in the Crothall unit.
Compass acquired Crothall’s laundry services unit, known then as Healthcare Laundry Systems, from Blue Wolf Capital Partners in 2011. The company was integrated with Crothall Healthcare, Compass’ division specializing in healthcare-support services.
Compass acquired Crothall’s laundry services unit, known then as Healthcare Laundry Systems, from Blue Wolf Capital Partners in 2011. The company was integrated with Crothall Healthcare, Compass’ division specializing in healthcare-support services.
Last year Compass generated GBP 22.8bn in revenue. Its North America operations posted GBP 13.3bn in revenue, of which the Healthcare and Seniors unit was responsible for 29%.
Compass and Crothall Laundry Services declined to comment.