Here's a sign of the times: 2004 is the first year since FOODMANAGEMENT began publishing its annual Top 50 listings that not a single company on the previous year's list was acquired in the interim. (The 2003 Top 50 did include Fine Host Corp., but that company had been acquired by Aramark in late 2002 and appeared only because it had operated independently for most of the previous year).

Does this mean the consolidation that has characterized the contract management segment since the 1990s is over?

Maybe. Maybe not. But it has clearly changed the face of the industry. In the process, the broadsegment managed services providers have stratified into a "Big Three" (Aramark, Compass Group North America and Sodexho, Inc.) and "all the rest."

It has also fostered a perception that the "Big Three" are "where the growth is" relative to onsite segments generally. But the natural question is: how much of that growth was simply due to acquisition?

To explore this issue, Food Management has analyzed its annual Top 50 listing over the past six years to examine the overall growth of these companies, the role their many acquisitions had in it and how much organic growth they've been able to achieve in the same period. We've also looked at the implications this consolidation will likely have for the contracted sector generally over the next few years.

The Big Three: 1997-2004
Our 1998 Top 50 was the last time Sodexho USA and Marriott Management Corp. were considered separately. When Sodexho Marriott (now simply Sodexho) merged in early 1998 it climaxed what can be seen as the middle stage of an industry consolidation that began in the 1970s, as regional contract providers began to merge in search of geographic reach and economies of scale. The middle stage was characterized by large acquisition deals for companies like Saga, Gardner Merchant, Canteen, Service America and Daka.

The Sodexho/Marriott deal set the stage for the contract services environment you see today, one characterized by an aggressive jockeying for position and market share among the top three service providers. Their competition, which extends around the globe, has produced even more sector consolidation as each has executed additional acquisitions to enhance its position in key markets.

The result? Of the 50 companies listed in FM's 1998 Top 50, only 27 remain in 2004. Five were dropped for technical reasons, but the rest no longer exist as independent companies. They were acquired in the interim.

Almost all of these acquisitions were by the Big Three, either directly or indirectly, through "food chain" logic as acquiring companies were themselves acquired.

For example, Culinary Service Network (#24) and Drake Management Services (#48) were bought out by Morrison Management Services (#7) before it was acquired by Compass (#3). Design Food Management (#38), Century Management Systems (#41) and PMG Services (#49) were taken over by Wood Co. (#8), which later was purchased by Sodexho (#6).

Buying Business
Sodexho's North American division, which reported $820 million in 1997 volume, reports $5.8 billion today. A good portion of that increase was due to the merger with Marriott's Management Services division, which added about $3.2 billion in volume to its total in 1999. Wood Co. added almost $600 million more in 2001. Those two acquisitions account for close to $4 billion of Sodexho's $5 billion in volume gain between 1997 and 2004..

Aramark reported sales of $4.130 billion for 1997 and $6.5 billion for 2003 for its Food and Support Services division.

Of that almost $2.4 billion gain, about $1.72 billion is directly attributable to the sales volumes of companies it has acquired since then. These include $750 million from ServiceMaster, $325 million from Ogden, $300 million from Fine Host, $150 million from Restaura and $70 million from Corrections Corp. (the numbers reflect annual sales at the time of acquisition, including the significant volume represented by more than 1,500 healthcare facility management contracts purchased in the ServiceMaster deal; that volume was not reflected in ServiceMaster's Top 50 listing at the time, which focused on food service business only).

Another $125 million in annual revenue came through Aramark's 2002 acquisition of healthcare technology management/equipment maintenance firm Clinical Technology Services from Premier, Inc. If the acquired volumes of these companies are taken out, Aramark has achieved about $650 million of its reported sales through organic growth over the period.