ServiceMaster PE Backer Gets TruGreen as Dividend

ServiceMaster’s handing off of its entire TruGreen business to private-equity owner Clayton, Dubilier & Rice is a rare occurrence, the Wall Street Journal reports.

The article notes that unlike the many private-equity-backed companies that have recently raised new debt or dipped into their coffers to pay their owners cash, ServiceMaster is giving up something else to its owners: a lawn-care business with $900 million in annual sales.

ServiceMaster is spinning off its TruGreen business, which accounts for about a third of its sales but has struggled recently, and giving it to private-equity owner Clayton, Dubilier & Rice LLC.

Private-equity-backed companies sold more than $130 billion worth of bonds and loans to fund payouts to their owners in 2012 and 2013 in back-to-back record-breaking years, according to Standard & Poor’s Capital IQ LCD data service. Rarely, however, do they hand over entire businesses.

“A dividend of the perhaps bottoming TruGreen business results in a smaller, less valuable ServiceMaster, a negative development as there is no planned debt reduction,” Moody’s Investors Service senior analyst Edmond DeForest said in a note to investors late last year. Moody’s is reviewing ServiceMaster’s credit for a possible downgrade because of the spinoff.

ServiceMaster says the pruning will clear its path to an initial public offering later this year and argues that the deal won’t affect its ability to pay down its debt.

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Source: WSJ