On most days at most restaurants and hotels, a truck pulls up and a driver drops off freshly cleaned uniforms, floor mats and other supplies and takes the used ones away for cleaning.
The company most likely providing those services in the Twin Cities area, Minnetonka-based G&K Services Inc. with its fleet of reddish orange trucks, said on Tuesday that it was being purchased by rival Cintas Inc. for $2.2 billion.
The deal is the largest ever in uniform rentals, the narrow description of a business that involves an array of apparel and cleaning services to firms in every industry. G&K, for instance, runs the gamut from renting and cleaning oil field overalls to printing T-shirts for corporate fun runs. It has a special facility in Silicon Valley to clean the bunny suits worn inside chip factories.
The deal came together after Cincinnati-based Cintas made an unsolicited offer that was sharply above G&K's share price, which had been at record levels since April. The companies agreed that Cintas would pay $97.50 in cash for each share of G&K, a 19 percent premium over G&K's closing price on Monday of $82.13.
"This is a compelling transaction that delivers substantial and immediate cash value to our shareholders and expands options for our customers going forward," Doug Milroy, G&K's chief executive, said in a statement.
Cintas has about $5 billion in annual revenue and offers a variety of other services to businesses beyond uniforms and cleaning, such as facilities management and fire protection. G&K, which just finished its fiscal year with $978 million in revenue, is the fourth-largest firm in uniform rentals after Cintas, the uniform business of Aramark Inc. and UniFirst Corp.
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Douglas Milroy, chief executive of G&K Services since 2009, has overseen a transformation of operations that raised profits, lifted its stock to a record high and positioned it for the sale announced Tuesday.
The industry was built through consolidation — both Cintas and G&K grew from family-run laundries into multinational firms through acquisitions — and investors have speculated about tie-ups between its biggest firms.
"We knew the uniform rental business has been consolidating for decades," said Andy Adams, investment manager at Mairs & Power, a St. Paul-based investment fund. "We are down to four big players and it's not surprising to see the consolidation continue here."
Cintas executives declined to discuss how U.S. antitrust authorities might react to the deal but said there was plenty of competition for uniforms, clothing and laundry. "There are over 600 operators throughout the U.S. and Canada who are just simply in uniform rental," Mike Hansen, Cintas' chief financial officer, said in a call with analysts. "Our customers and prospects also have other solutions in a direct purchase environment."
Hansen declined to say what led Cintas to make an offer for G&K now but noted the strides G&K's management and employees have made to lower costs and raise profits. "They have had a very impressive run," Hansen said. "They are a well-run company and we certainly respect the things they've done over the last several years."
Since Milroy took the helm of G&K in 2009, when it and similar service firms had been hit hard by the recession, the company has made operational and cost improvements that have led to a doubling of its operating margin to around 12 percent.
Hansen said Cintas would develop a plan to integrate the two firms after the deal is closed, expected to be in four to six months. Cintas and G&K overlap in most of the U.S., and Hansen said the combined firm will keep the big corps of drivers who double as sales and service representatives to customers. But they will likely have smaller routes, he said.
"The more we can create density on our routes, the more our service and sales reps are going to able to spend more time with our customers instead of driving," Hansen said.
Cintas will run G&K as a separate unit and keep the G&K brand initially. But eventually, the G&K fleet will be repainted with Cintas' signature red, white and blue colors and logo.
That will bring to an end a corporate identity with roots to 1902, when Alexander and Morris Gross bought a small dye company in Minneapolis. By 1930, they had turned the company into the largest dry cleaning service in the Twin Cities. In 1934, the pair bought a rival firm, Kronicks, and took the name Gross & Kronicks, which was shortened to G&K in 1943.
After World War II, the firm developed a cloth diaper service to serve the midcentury baby boom and, in the 1950s, moved into uniform rentals for businesses, including restaurants, hotels and factories. When the company went public in 1969, it had 45 laundries around the Twin Cities but its uniform rental business was even larger.
Fueled by investment capital, G&K acquired other regional laundry and uniform companies through the 1970s and 1980s and crossed the $100 million revenue threshold in 1989. It made its largest acquisition in 1997 with the nearly $300 million purchase of National Linen Service, a leading provider of uniform and laundry services in the southeast U.S.
Cintas got its start in 1929 as Acme Overall & Rag Laundry and moved into uniform rentals in the 1950s when the founder's son took over the business. It took the Cintas name in the 1970s, went public in 1983 and, like G&K, used the capital it raised to go on an acquisition spree that eventually gave it a national footprint.
Evan Ramstad • 612-673-4241
Patrick Kennedy • 612-673-7926
