ServiceMaster details TruGreen spin-off

MEMPHIS, Tenn. – Calling the division a distraction, ServiceMaster’s CEO announced yesterday that the company would spin-off TruGreen LawnCare as a standalone company by the end of the year.

The separation of TruGreen LawnCare also positions ServiceMaster well for an IPO in the near future.

Effective Dec. 31, TruGreen LawnCare will be a separate company. It willl be owned by private equity-firm CD&R, said Rob Gillette, ServiceMaster CEO, during a third-quarter earnings call Thursday.

The remaining ServiceMaster – including the Terminix, American Home Shield, Merry Maids and ServiceMaster Clean brands – will stand as a separate company with revenue of $2.3 billion.

“We have significant opportunities to grow these businesses … into adjacent sectors and new markets,” Gillette said on the call. “TruGreen has been distracting.”

The announcement comes as no surprise – the green sides of ServiceMaster’s business have been performing poorly for several years. In 2011, the company unloaded TruGreen LandCare, its commercial landscaping division, to another private equity group for $38 million, a fraction of the $250 ServiceMaster paid for it in 1999.

David Alexander, TruGreen LawnCare president, said the separation allows his division to focus on its core problems, namely a drop in customers of around 300,000 over two years, and an inability to retain new customers. He said the company’s goal is to return to 2012 customer levels by the end of next year.

“We still have some upward battles in terms of customer count. We’re not going to build customer count significantly for two or three more quarters. I believe we’re stabilizing customer count. We’re to a point we can stabilize, but we’re not at a point where we’re going to build for several quarters,” Alexander said on the call. “We had some issues serving everyone. We have not provided all-star service to anyone this year.”

The spin-off also positions the new ServiceMaster well for a potential IPO.

“There’s always the idea of a liquidity event somewhere in ServiceMaster’s future. This brings that liquidity event closer to us, clearly,” said Alan Haughie, ServiceMaster’s CFO.

Ron Edmonds, an M&A consultant based in Memphis, said the news is promising if it means new ownership of TruGreen, but in the short-term means confusion in the market.

“The problem is that there’s a high level of uncertainty. That’s the worst thing for the industry,” Edmonds said. “I don’t think anything is improved by what’s just happened.”