Elis confirms preliminary approach to acquire Vestis amid market challenges

Elis SA, a French provider of uniform, linen cleaning services, and workplace supplies, has confirmed that it made a preliminary approach to acquire Vestis Corp., a U.S.-based uniform supplier. The announcement, made on September 6, 2024, highlights Elis’s ongoing strategy to explore potential acquisition opportunities, but it stresses that there is no guarantee the discussions will lead to a formal agreement or transaction.

Vestis, the former uniform rentals business of Aramark, is currently valued at approximately $3.3 billion, including debt. The company has faced significant market challenges in recent months, including the loss of key customers and a 35% drop in its stock value this year. This drop in performance has made Vestis an attractive target for acquisition, drawing attention from Elis and potentially other suitors. The French company’s approach comes as part of its effort to expand its footprint in the U.S. market and further solidify its position as a leader in workplace services.

Elis emphasized that any potential acquisition would adhere to its financial discipline commitments, including maintaining its investment-grade rating and a leverage ratio of around 2.2 times adjusted EBITDA in the first year and 2.0 times in the second year. The company also aims for the acquisition to be accretive to its earnings per share (EPS) in the first year of the transaction. However, the company did not disclose the financial terms of its initial offer to Vestis and reiterated that there is no certainty the discussions will result in a finalized deal.

One significant development surrounding this potential acquisition is the involvement of Corvex Management, an activist hedge fund led by Keith Meister. Corvex recently took a stake in Vestis and Meister was appointed to its board, signaling potential strategic shifts for Vestis. This involvement could complicate any acquisition negotiations, as Corvex’s presence suggests a possible push for improved management practices or even alternative suitors for Vestis.

If a deal is reached, it would not be Elis’s first major acquisition move. The company has a history of expanding its market reach through strategic acquisitions. However, this approach could also draw comparisons to its previous experience during the Berendsen takeover bid in 2017, where multiple bid increases led to perceptions of overvaluation. Such concerns might be a factor in how the market reacts to this potential Vestis acquisition.

Market analysts have indicated that Elis’s share price dropped by about 11% following the announcement, reflecting investor caution. Concerns about the financial prudence of such a large acquisition, especially given Vestis’s current market difficulties, have led some investors to question whether this move could overextend Elis financially. Nevertheless, the French company remains committed to identifying growth opportunities and has stated that any final decision will be made in the best interest of its shareholders.

The outcome of this acquisition approach remains uncertain as Vestis, Elis, and Corvex navigate these complex discussions. Given the market volatility and Vestis’s ongoing challenges, the coming weeks could see further developments in this potential acquisition story.