ServiceMaster Goes Where the Grass Is Greener

Shares of the lawn-care outfit surged Monday after it agreed to a buyout offer from private-equity player Clayton, Dubilier & Rice

Despite volatility in major stock indexes and worries about a meltdown in the subprime mortgage market, the torrent of private-equity deals hasn't let up in 2007. The latest example: Private equity firm Clayton, Dubilier & Rice said Mar. 19 that it will buy ServiceMaster (SVM) for around $5.5 billion, only a few months after the Downers Grove (Ill.)-based lawn care and pest control company had announced the possibility of selling itself. Investors bid up ServiceMaster's stock more than 12% after the development.

"CD&R will bring valuable insight to our business and contribute to the acceleration of profitable growth," CEO J. Patrick Spainhour said in a press release Mar. 19.

Under the terms of the agreement, ServiceMaster's stockholders will receive $15.625 in cash for each ServiceMaster share, representing a 31% premium over the company's closing share price of $11.90 on Nov. 27, the day before the company announced plans to explore a possible sale. After the news investors bid up ServiceMaster's stock by 12.3% to $15.12 per share in early afternoon trading on the New York Stock Exchange.

ServiceMaster, which serves residential and commercial customers through a network of over 5,500 company-owned locations, has many brands including the Terminix pest-removal service.

"We have been interested in ServiceMaster for years, and have always felt that its management team, unique mix of market leading brands and leading industry positions were a great fit with CD&R's investment approach," said CD&R's CEO Donald J. Gogel.

The private equity firm has been involved in other multi-billion deals involving consumer-oriented companies in recent years. In fall 2005, Ford Motor Co. (F) sold its Hertz rental-car division to a group of private investors including CD&R, The Carlyle Group, and Merrill Lynch Global Private Equity for $15 billion. CD&R also sold Kinko's to FedEx (FDX) for $2.4 billion in cash in February 2004.

CD&R is buying ServiceMaster during a time of rampant activity by private equity buyers. Institutional investors, including public and private pension funds around the world, have been investing money into private equity amid relatively ho-hum returns in the public markets. Meanwhile some managers have been looking for ways to avoid the hassles of being a public company as they face greater regulatory scrutiny and increasing pressure from return-hungry investors (see, 6/13/06, "Fresh Barbarians at the Gates?").

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