ARA Services

The ARA Tower
1101 Market Street
Philadelphia, Pennsylvania 19107
U.S.A.
(215) 238–3000

Private Company
Incorporated: 1959 as Davidson Automatic Merchandising Company, Inc.
Employees: 120,000
Sales: $3.92 billion

ARA’s is a short but eventful history. The company has grown out of the merger of two small vending companies in 1959 to become a huge service management company that today provides or manages services in four diverse areas: food and refreshment services; magazine and book distribution services; uniform rental, maintenance, and airport services; and health and education services. Its growth has come mainly through acquisition; ARA has bought more than 300 companies since 1959. All this activity has not come without strife, however. Over the years the company has been accused of price fixing, monopolization of markets, and infiltration by organized crime.

ARA was incorporated in 1959 when William Fishman merged his Chicago vending machine business with Davre Davidson’s Los Angeles operation. The new company, Davidson Automatic Merchandising Company, Inc., rang up $25 million in sales during its first year. By the end of the year, its name had been changed to Automatic Retailers of America, Inc. The first of its many acquisitions came in 1961, with the purchase of Slater Company Foods, the largest company in the industrial and college foodservices business.

The Federal Trade Commission (FTC) and ARA first clashed in 1964, when the FTC complained of attempts by ARA to monopolize the vending business. In a consent order, ARA agreed to divest vending companies worth $7.7 million in revenues.

More diversification and acquisitions followed. Almost every year, at least one acquisition was made. The company’s strategy was to build national businesses where only local ones existed before. In 1966 ARA formed a division to run parks and resorts. Two years later it acquired a Washington, D.C. company, District News Company, giving it a dominant position in periodicals distribution. Other publication distribution companies were acquired in each of the next three years. In 1969 the company abbreviated its name to ARA Services.

In 1972 the purchase of a California firm, Educational & Recreational Services, Inc., gave ARA entry into the school busing industry. This was just one of nine purchases in fiscal 1972, and in fiscal 1973 ten more companies were acquired.

ARA’s next brush with the law came in 1973, when the FTC challenged ARA’s purchase of 98 vendingmachine companies and 39 local publication distributors. Both complaints charged that ARA’s acquisitions created monopolies or illegally reduced competition. Consent orders forced ARA to divest itself of other vending and periodicals companies and to accept a ban on entering certain markets without FTC approval. Also in 1973, the company paid $80,000 in fines after pleading no contest to federal charges of cigarette price-fixing in Cincinnati, Ohio and conspiracy to fix prices of vended drinks in Atlanta, Georgia.

In 1974 and 1975 six more companies became part of ARA. Acquisitions in 1977 included the U.S. rentalservice business of Work Wear Corporation, a uniformrental company. In 1977, ARA conducted an internal investigation and found that certain employees had received $504,000 in illegal rebates from suppliers and shipping businesses. The same inquiry also concluded that employees had paid out $393,000 to politicians and business contacts.

In May 1978, ARA was sued by a former employee, Peter L. O’Neill, who was director of the company’s security division from 1974 to 1977 and, prior to that, an FBI agent. O’Neill claimed that he was dismissed because he knew too much about illegal activities carried out by ARA officials and that ARA had tried to cover up illegal payoffs and dealings with underworld figures. The company settled the suit out of court for $250,000, denying any connections with organized crime. It also divested itself of the subsidiary named in the suit.

In March, 1979, ARA agreed to pay a $300,000 fine and sell some assets in settlement of a suit brought by the government in 1977. The suit had charged that the company had violated the 1973 FTC order prohibiting it from acquiring any periodicals wholesalers without prior approval from the commission.

Other purchases over the next few years included a nursing home chain, and, in 1980, a trucking company, Smith’s Transfer Corporation. The recession of the early 1980s did not stop ARA. A chain of day-care centers, National Child Care Centers, Inc., was a major purchase in 1981, and in 1982, Means Services, Inc., a uniform and laundry service, was bought for $45.5 million in cash. This acquisition made ARA the world’s largest uniform renter. The 1983 purchase of Solon Automated Services, an operator of 200,000 washers and dryers, bolstered this business segment. One analyst attributed ARA’s success during the recession to “its ability to manage businesses in which large numbers of employees, often earning below average wages, handle large amounts of cash and operate away from any central control.”

The next year, 1984, was a key one in ARA’s history. In April, the chairmanship passed from William Fishman, one of the company’s founders, to Joseph Neubauer. Neubauer had come to ARA in 1979 from PepsiCo, and was appointed president and CEO before beginning his tenure as chairman. Neubauer began an overhaul of corporate strategy, seeking a higher profile for the company and focusing less on acquisition and more on marketing and internal controls. As part of this quest for a higher profile, for example, employees began to wear ARA uniforms. Advertisements for the company appeared in business and news magazines. To help raise employee morale, and thereby improve performance, an incentive program that rewarded employees for bringing clients of one division into another was initiated. These merit bonuses for managers could amount to as much as 45% of salaries. The company won several contracts, including one for six years with Baltimore’s Memorial Stadium and one for 15 years with the New Orleans convention center. In 1984, ARA served the Olympics for the tenth time. During the two weeks of the games, the company served 50,000 meals and provided 20,000 box lunches daily. ARA also had 13,000 drivers shuttling athletes and spectators between sites.

In July, 1984, William M. Siegel, a former director and top manager of ARA, offered to buy the company. Neubauer turned him down. But over the following months Siegel pursued the matter; finally, in December, 1984, an $882.5 million management buyout was announced. Management formed ARA Holding Company to acquire the organization, and ARA Services became a private company, owned by 70 senior executives.

The ARA deal however, was not a typical leveraged buyout. Management did not sell parts of the company to pay back its debt. In fact, it immediately continued its acquisition campaign.

Although, during the previous August, the transportation unit had been sold, in the years immediately following the buyout the company continued to grow. In 1986 the food-services units bought Cory Food Services, Inc., Cory Canada, Inc., and Szabo, while during the same year the uniform-rental business grew with the purchase of Servisco, a company that leased and serviced work garments.

Saga Corporation, another giant food services company, became available for acquisition in 1986. ARA lined up financing to bid for the company, but was outbid by Marriott Corporation. Although the deal did not go through, it was seen as a good sign that ARA could even make a bid just two years after a major transition.

In 1987, major changes included the acquisition of Children’s World, the child-care affiliate of Grand Metropolitan; the sale of Smith’s Transfer; and the formation of GMARA, a joint venture with General Motors, to serve as industrial cleaners in GM plants.

There were internal changes also: ARA increased its 70-member management group fourfold, increasing management’s share of stock from 26% to 34%. In March, 1988 a stock repurchase boosted management’s stake to 56%.

ARA’s history has been turbulent, but as a service company, it is in the fastest-growing segment of the economy. Since its management buyout in 1984, the company has continued to do well. Operating profits reached a record high of $211 million in 1988 as the company has concentrated on expansion through internal growth, and acquisitions have been made only in what ARA considers its core businesses. Emphasizing client retention as the base of success, ARA’s future seems certain to hold continued growth.

Principal Subsidiaries:

Aero Enterprises, Inc.; ARA/Cory Refreshment Services, Inc.; ARA Environmental Services, Inc.; ARA Health/Care, Inc.; ARA Health Facilities of Florida, Inc.; ARA Healthcare Management, Inc.; ARA Healthcare Nutrition Services, Inc.; ARA Healthcare Textile Services, Inc.; ARA Leisure Services, Inc.; ARA Transportation Services of Dayton, Inc.; ARA Virginia Sky-Line Co., Inc.; Aramont Properties, Inc.-Delaware; Aramont Risk Management Services, Inc.; ARASERVE, Inc.; ARASERVE of Puerto Rico, Inc.; Aratex Services, Inc.