Thoughts on the Trugreen Spin Off Announcement

The lawn care industry was somewhat startled by last week’s announcement that ServiceMaster plans to spin off TruGreen as a separate independent company controlled by Clayton, Dubilier & Rice (CD&R), ServiceMaster’s private equity sponsor. The announcement was included in ServiceMaster’s third quarter earnings report.TruGreen Spin Off The announcement gave rather oblique reasons for the spin off. Robert Gillette, ServiceMaster’s new chief executive officer said that separating TruGreen from the ServiceMaster portfolio will give TruGreen “the time and focus it needs to make the changes necessary to complete the turnaround of its business.” Gillette added “It has now become clear that while we’re making progress, TruGreen is on a different earnings growth timeline than the rest of ServiceMaster.”

TruGreen has experienced declining customer counts amid changing marketing strategies. Systems issues have added to the problems the Company faces.

ServiceMaster to Spin Off TruGreen

It is not altogether clear what all this means. On the investor conference call that followed the announcement, ServiceMaster executives conceded that the spin-off may accelerate the timing of a “liquidity event” for ServiceMaster. The liquidity event could be an initial public offering or some other transaction. They also stated that none of ServiceMaster’s debt would be following TruGreen as a separate entity.

Although facilitating a liquidity event for ServiceMaster may be the driving force behind the spin off, CD&R’s longer term plans for TruGreen are not clear. In the meantime, ServiceMaster executives have indicated that TruGreen will continue to share space at ServiceMaster’s headquarters in Memphis and that David Alexander, TruGreen’s president, will continue to report to Gillette