Behind-the-Scenes Player Takes Spotlight

After years of improvements under strong leadership, uniform provider G&K Services is selling high.

G&K Services doesn't get a lot of public attention, even though a wide swath of North American workers have likely worn a uniform or used paper towels supplied by the more than 100-year-old company. Likewise, CEO Douglas Milroy isn't exactly a household name -- but he deserves a round of applause.

After more than seven years at the helm of G&K, Milroy struck a deal to sell the company to rival Cintas for $2.2 billion, including debt. Talk about selling high -- the purchase price is a 19 percent premium to Monday's close. which was itself a record. But for G&K shareholders, his smart stewardship has become par for the course.

On the Up and Up

G&K stock has been on a steady climb.

Source: Bloomberg

Under Milroy's watch, shareholders have reaped a roughly fivefold return (including dividends). 1 That's about double what relevant benchmark indexes have yielded over the same stretch and also greater than the return delivered by Cintas, according to data compiled by Bloomberg. The CEO took an ax to the company's cost structure and churned out consistent improvements to both the operating margin and return on invested capital. G&K has missed analysts' earnings estimates just three times in the last 29 quarters.

Few Stumbles

G&K has only rarely missed analysts' earnings estimates during Milroy's tenure.

Source: Bloomberg

After all the productivity gains, G&K had been hoping to rely more on strong, stable revenue growth to fuel its next phase. On that front, the company ran into some issues not of its own making. Energy firms slashing jobs amid the slump in commodity prices aren't using as many uniforms and safety gear as they once were, while industrial and manufacturing companies are grappling with the sting of slowing global growth. As such, analysts were growing a bit wary of G&K's ability to reach ever-higher stock prices. 

Getting Ahead of Itself

G&K had started to push past analysts' target prices in the weeks preceding its deal announcement with Cintas.

Source: Bloomberg

One way to remedy the growth issue is to just buy it, something Milroy said as recently as June that he was thinking about -- but only at the right valuation. Here's what the CEO told a Robert W. Baird conference:

"We've gotten the kind of results you've seen through a lot of discipline and we're not going to give it up in the M&A markets."

Why not lock in your gains and let someone else offer you a nice plump valuation instead? In its deal with Cintas, G&K is commanding about 13 times its projected Ebitda for fiscal 2017 . There aren't many perfect M&A comparisons for such a niche industry, but that valuation exceeds the median paid for recent deals of size in the commercial-services industry at large. 2

The purchase price may yet swell. As part of its agreement with Cintas, G&K agreed to cease existing previously conducted discussions with any parties about an acquisition offer -- which suggests that Cintas wasn't the only one who was interested. That said, the stock isn't trading past the offer price, so traders seem to see a counter-bid as unlikely. Either way, Milroy should feel good about a job well done.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. Data is calculated on a weekly basis through the end of last week. 

  2. For what it's worth, this is also a pretty great deal for Cintas, which is targeting as much as $140 million of annual synergies. The shares climbed as much as 9.5 percent on Tuesday.

To contact the author of this story:
Brooke Sutherland in New York at

To contact the editor responsible for this story:
Beth Williams at

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