Food services company Aramark's shares rise 12 pct in debut

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Dec 12 (Reuters) - Shares of Aramark Holdings Corp rose as much as 12 percent in their market debut, valuing the food services provider at about $5.13 billion in its third appearance as a public company.

Aramark raised $725 million after its initial public offering of 36.3 million shares was priced at $20 per share, the low end of its expected range.

The company's shares opened at $20.25 and touched a high of $22.40 on the New York Stock Exchange on Thursday.

Aramark provides catering services and facilities management to the education, healthcare, sports and leisure industries.

The Philadelphia-based company sold 28 million shares in the offering, raising about $560 million to repay debt.

Aramark went private twice - first in 1984 to avoid a hostile takeover and then again in 2006 when it was sold for $8.3 billion to private equity investors including GS Capital Partners, JP Morgan Partners and Warburg Pincus.

Founded in 1959, Aramark is the third-biggest player in the highly fragmented $300 billion global food services industry with a 3 percent market share.

The company, whose biggest competitors are Compass Group Plc (Other OTC: CMPGF - news) and Sodexo SA, operates in 22 countries and has about 272,000 employees.

Aramark provides services to 86 percent of the Fortune 500 companies and serves over 500 million meals annually to about 5 million students at colleges, universities and K-12 schools, according to its regulatory filing.

"Aramark's recurring revenue streams promise considerable value for long-term investors," Morningstar (NasdaqGS: MORN - news) analyst Barbara Noverini said in a note to clients.

Aramark's core business of food and facilities management accounted for about 90 percent of its revenue of nearly $14 billion in fiscal year 2013. North America accounted for 77 percent of sales.

Joseph Neubauer, who was the company's chief executive for 29 years before stepping down last year, owns about 10 percent of Aramark. He sold 1.3 million shares in the offering.

Warburg Pincus remains the company's largest shareholder with an 18.2 percent stake.

HEAVY DEBT LOAD

Aramark has $5.6 billion in long-term borrowings, much of which was acquired during a leveraged buyout led by the management. Its debt load is about 5.5 times its 2013 earnings before interest, taxes, depreciation and amortization.

The company plans to use a major portion of the proceeds to repay about $412 million of term loans due July 26, 2016.

"Aramark needs to stick to its deleveraging plan in order to take advantage of the long-term growth potential represented by a fragmented market," Morningstar's Noverini said.

Although the fragmented food service market has some rich pickings, Aramark has fallen behind its larger peers on the acquisition front, given its sizeable debt load, the analyst said.

"Since Aramark's LBO, Compass Group and Sodexo (Frankfurt: SJ7.F - news) have surpassed Aramark's average acquisition activity both on a percentage of sales and absolute dollar basis, without having to rely on additional leverage," Noverini said.

Goldman Sachs (NYSE: GS-PB - news) , JPMorgan, Credit Suisse (NYSE: CS - news) and Morgan Stanley (Xetra: DWD.DE - news) were the lead underwriters for the offering. (Reporting By Neha Dimri in Bangalore; Editing by Kirti Pandey)