ServiceMaster Considers Selling Brands as CEO Steps Down
MEMPHIS, Tenn.—January 22, 2020—The board of Service Master Global Holdings is exploring the possibility of selling its five ServiceMaster Brands: ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic, and AmeriSpec. This move would leave ServiceMaster solely focused on its dominant business, Terminix, the Daily Memphian reports. ServiceMaster CEO Nik Varty stepped down Tuesday, and Naren Gursahaney, current board chairman, will serve as interim CEO.
“Our continued focus on maximizing shareholder value has led us to the decision to explore strategic alternatives for our ServiceMaster Brands segment,” Gursahaney said in a statement, according to the Daily Memphian. “Following a thorough review of our portfolio of businesses and the current strong valuations for businesses like ServiceMaster Brands, we determined the timing is right to explore strategic alternatives. We believe ServiceMaster shareholders would benefit from our Terminix business becoming a pure-play, global pest control company with enhanced management focus and resources.”
The Daily Memphian reports that if the company does sell its other brands while retaining Terminix, ServiceMaster would become only the second company in the U.S. focused only on pest control. Tim Mulrooney, analyst at William Blair, expects ServiceMaster could sell the brands for $1.4 billion-$1.5 billion. Along with this strategic change will come another: the company needs a new CEO to continue growth of the Terminix business as ServiceMaster’s sole brand. Former CEO Nik Varty has agreed to stay on as an advisor through the end of February as the company begins its search for a new leader.
Varty became ServiceMaster CEO in July 2017. The Daily Memphian reports that his leadership over the last 2.5 years saw share prices rise steadily from $27 to $58.47; however, the price dropped more than 20% last October with the company’s announcement that its third-quarter earnings would be off. Stifel analyst Michael Huffman describes the decision of the board and Varty to separate as “amicable” following the board’s decision to try and sell the ServiceMaster Brands. According to the Daily Memphian, Huffman states that Varty’s strategy as CEO was working, and he expects a successor would “continue the servant leadership cultural change currently underway.”
In business for nearly a century, ServiceMaster began as a moth-proofing company in 1929. After incorporating in 1947, the company began to expand its offerings into other industries, including carpet cleaning, residential cleaning, and restoration. Today, ServiceMaster is a global franchise system that offers both residential and commercial services in pest control, cleaning, restoration, and property inspections. The company employs more than 40,000 people as of 2018 in both the corporate office and its network of franchises.
Though the company has offered many different services over the years (some of which spun off into separate companies, like TruGreen and American Home Shield), the majority of ServiceMaster’s revenue comes from its original service: pest control. The Daily Memphian reports in the last quarter, the combined ServiceMaster Brands accounted for 12% of revenue overall, while Terminix continues to be the company’s dominant business. In the first three quarters of 2019, Terminix revenue was growing at 9%, more than twice as fast as the ServiceMaster Brands. ServiceMaster will release its fourth quarter earnings on February 27, and the company has said it will not comment further on its future until the board has completed its review and finalized a plan.