French food services company Sodexo is considering the acquisition of U.S.-based facilities management and food service competitor Aramark as part of its strategy for international expansion, Bloomberg News reported Thursday.
Revenue for Sodexo’s North America business accounted for 46% of its fiscal year 2023 revenue, which grew organically 9% year over year to approximately $3.24 billion in the third fiscal quarter of 2024, according to its earnings presentation. Sodexo reported a 12.1% year-over-year increase in its business and administrations unit in the third quarter, attributing that growth to a continued return to office, while a combination of price increases, retail growth and net new contribution in healthcare held its healthcare and seniors unit revenue to a 5.6% year-over-year increase, per its earnings report.
Philadelphia-based Aramark, meanwhile, has experienced record revenue and profitability. Revenue for Aramark’s food service and support, or FSS, segment in North America revenue organically grew 9% year over year to roughly $3.15 billion, led by a 16% increase in revenue for its business and industry group and a 13% climb in revenue for its sports, leisure and corrections business, compared with the previous third fiscal quarter. Aramark also grew revenue in its education and “facilities and other” segments by 7% and 4% year over year in the third fiscal quarter, respectively, while healthcare fell 1% in the third quarter.
Aramark could provide a “helpful growth engine with meaningful synergies for Sodexo, which has lagged its peers in recent years,” Jefferies Financial Group analyst Allen Wells said in a report Thursday, Bloomberg reported. Wells noted that the rise in Aramark shares would mean that Sodexo’s potential acquisition could approach “a merger of equals.” The deal would require Sodexo to raise significant equity and debt financing, Wells said. Any potential transaction could face antitrust scrutiny, meaning there is no certainty that the talks, which have been ongoing for months, would lead to a transaction, Bloomberg reported.
Both companies have reported strong growth in their sports and entertainment verticals this year.
In addition to its work at the 2024 Paris Olympics, Sodexo organically grew its U.S. “Sodexo Live!” segment 30.7% year over year in the third quarter, in part due to elevated attendance at conference centers and cultural destinations, as well as increased passenger counts in airline lounges and the mobilization of new lounge contracts, Sodexo CFO Sebastien de Tramasure said on an earnings call in July.
De Tramasure mentioned the company’s recent agreement to work with and extend contracts in universities that have good sporting teams and facilities, naming an agreement signed with the University of Cincinnati and a hospitality contract with the University of Texas.
Despite the rise in sports revenue, Aramark is in tense negotiations with workers at all three of its hometown sports stadiums, with hundreds of workers striking outside the Philadelphia Sports Complex, which include Citizens Bank Park, the Wells Fargo Center and Lincoln Financial Field. Simultaneously, a union local representing concessions workers at the Oakland Coliseum has alleged that Aramark is refusing to provide already accrued healthcare benefits after the baseball team leaves the city.
The two firms’ performance in education has been split, however. While Aramark grew U.S. revenue in its education vertical 7% year over year to nearly $780 million in its third fiscal quarter, revenue for Sodexo’s education vertical rose just 2.4% in this third fiscal quarter. Sodexo attributed the subdued growth to an unfavorable calendar impact in universities and a drop in the number of sites of a large school contract. Despite this contract loss and the lack of a big request for proposal from universities at the time of its third quarter earnings, “it's a very active education season” in the U.S., de Tramasure said, pointing to potential new wins.
Sodexo recently entered into a 10-year partnership with Virginia-based Emory & Henry College, which will expand the food service provider's responsibility from food service to a “wide range of facility-related functions.”
Meanwhile, Sodexo plans to expand more into the office sector, with Amy O’Neil, the company’s president of workplace experience for corporate services in the U.S. saying that “Sodexo has the DNA and the legacy as a food business to legitimately be in the workplace experience business.”
