Uniform rental company Cintas said Tuesday it had agreed to acquire smaller rival G&K Services for about $1.9 billion, creating a combined entity that will serve more than 1 million business customers.
Both companies started out providing laundry services before diversifying into uniform rentals. Minnesota-based G&K serves more than 170,000 customers in the healthcare, transportation, and manufacturing industries in the U.S. and Canada, generating more than $1 billion in annual revenue.
Cintas will pay $97.50 a share for G&K, a 19% premium to its closing price on Monday. Including assumption of debt, the total enterprise value of the deal is $2.2 billion.
“The combined company will provide innovative products and caring service to over 1 million business customers,” the two companies said in a news release, noting that the merger will provide Cintas with additional processing capacity.
“Route density will also increase which will improve customer service and result in significant cost savings,” they added.
G&K was formed from the merger in 1934 of two dry-cleaning services in Minneapolis-St. Paul. In the 1950s, it moved into uniform rentals for businesses, including restaurants, hotels and factories.
For its fiscal fourth quarter, the company’s profits rose 20% to $19.8 million, while revenue increased 9% percent to $258.5 million. Its sales have risen each quarter for the past three years, while Cintas has put together a streak of five quarters of sales growth, according to Thomson Reuters data.
Northcoast Research analyst John Healy said Cintas was paying a fair price and over time the deal would prove to be a smart financial move.
“We have thought for a long time that further consolidation in the uniform rental space would make a tremendous amount of financial sense,” he told Reuters.
Cintas said the merger is expected to generate annual savings of $130 million to $140 million. On news of the deal, G&K shares rose as much as 18.5% on Tuesday to a record high of $97.35, while Cintas was up 6.1% at $113.99.
