Elis Shares Slump After Acquisition Offer

Elis (EPA:ELIS) shares fell by 16% on Friday following a Reuters report that the French workplace supplies company made an acquisition offer for Vestis (NYSE:VSTS), the former uniform rental division of Aramark (NYSE:ARMK).

Vestis Acquisition Details

Vestis, valued at $3.3 billion, has become an acquisition target due to its recent struggles and loss of key clients.

Analyst Insights

According to analysts at J.P. Morgan, acquiring Vestis could provide Elis with an opportunity to strengthen its presence in the U.S. market, which is valued at approximately $42 billion. However, there are significant challenges to consider as well.

“We expect Elis’ market entry would present a slightly greater negative for UniFirst (NYSE:UNF),” the analysts said.

Morgan Stanley also highlighted that financing the acquisition may pose issues for Elis, which recorded €303.6 million in free cash flow for FY23.

Historically, when Elis made a similar-sized deal, such as the Berendsen acquisition in 2017, it raised equity to support the transaction. As of December 2023, Elis had a leverage ratio of 2.0x, aiming to reduce it to 1.8x by year-end.

“We note Elis’ leverage has decreased from ~5x since the Berendsen acquisition, but leverage has historically trended at c.3-3.5x for sustained periods of time,” the analysts noted.