Turnaround guy takes charge at ServiceMaster
Nikhil Varty will turn 54 in August. He’s already lived in 16 cities in his adult life and graduated from colleges in Mumbai, India, and Scranton, Pennsylvania.
These days he rents an apartment on the South Bluffs, while his wife and Dora, a 14-year-old Labrador retriever, and Ponyo, a young Newfoundland breed, remain home for now in the big house near Detroit. Who’s Nik Varty? He’s the new turnaround guy at ServiceMaster Global Holdings.
Memphis has $7 million in tax breaks riding on him.
Turnaround man
Memphians largely think of ServiceMaster as the local company that, rather than move away to Phoenix or Atlanta, stayed put.
Last winter the company pulled off the spectacular renovation of an empty Downtown shopping mall into a new headquarters, and celebrated the move this week with a grand opening.
But here’s the thing: Nik Varty was hired to lead the company in a new direction.
Yet when Memphis and the state of Tennessee chipped in $12 million together to hold on to the 1,200 office jobs, ServiceMaster wasn’t billed as a work in progress.
So what happened?
Repeating success
“I wasn’t really looking for a job,” Varty said.
Mark Tomkins, the ServiceMaster chairman of the board, looked him up anyway. Their paths had crossed earlier working at AlliedSignal (now Honeywell) and Great Lakes Chemical (now Chemtura).
As they talked Varty realized Tomkins wasn’t offering a quiet office job. He liked that.
Varty had helped build up truck parts-maker WABCO (formerly Westinghouse Air Brake), largely by going beyond the heavy-truck manufacturers. He found new business among shops that sell truck parts to mechanics and truck fleets. He thought he could repeat his success in Memphis. The pay helped, too.
Compensation for Rob Gillette, his predecessor, had neared $14.4 million in his final year, half in stock options, according to a ServiceMaster report. Varty’s compensation would reach $4.1 million in 2017 for less than half a year’s work.
2 prizes
So he came to Memphis and immediately let go many of the senior executives Gillette had hired during his own
short stint as CEO. Memphians largely were surprised. Sure, the company had run up debts — $2.6 billion worth by 2016, much of it borrowed to pay off New York investors. But never was the 13,000-employee company, the fourth-largest public corporation based in Memphis, described as ripe for reorganization.
Two of its brands were thought of as distinct prizes able to ring up hearty sales and keep Wall Street traders satisfied the stock price, despite the debt, wouldn’t quickly swoon.
At the core was Terminix. Founded in the city in the 1930s, when Americans warred against wood-chewing termites, Terminix traces to a scientific solution created by chemists in the then-vital Memphis lumber industry (the metro area to this day is home to the National Hardwood Lumber Association).
By 2017, Terminix pest control sales surpassed $1.5 billion per year, a volume that meant if it were a private company it would be the city’s fifth largest measured by sales.
While pest control anchored ServiceMaster, providing half the $2.9 billion in corporate revenue, American Home Shield was the fast-growth spear. AHS warrantied homes. House buyers signed up for the insurance to cover the sudden cost of replacing broken items such as furnaces and air conditioners.
Last year AHS revenue topped $1.1 billion — enough money to rank No. 8 in size in Memphis if it were a separate private business. Within ServiceMaster, AHS was viewed as the future.
Clients were served in most of the nation’s 42,000 ZIP codes. This positioned AHS as a calling card to introduce its customers to Terminix and other ServiceMaster brands, including Merry Maids home cleaning, ServiceMaster Restore damage repair in calamities such as floods, FurnitureMedic repairs and Amerispec home inspections for new buyers.
New directions
That was the plan. American Home Shield would use its heft, marketing and social media to pump more business into Terminix and the other brands.
It looked like clear sailing when Gillette announced the decision to move the head office to 150 Peabody Place from East Memphis. Then Varty stepped in. He immediately set out to reorganize Terminix, giving it a commercial arm, and spin off AHS as a separate company in autumn 2018.
Tomkins, the ServiceMaster chairman, never explained the reason for Gillette’s departure. Neither did Gillette, a former auto parts executive who had kept his home near Phoenix.
Gillette’s big task was to take ServiceMaster public, which means shares of stock were issued and now trade on the New York Stock Exchange. He also spun off TruGreen, a 1,900-employee lawn care business.
TruGreen LLC ranks as the No. 6 private business in Memphis with national sales exceeding $1.4 billion per year. Carving a new firm out of an existing business benefits shareholders. They get to own a stake in a new company.
Would Gillette have done what Varty is doing? It’s not clear.
What is clear is Varty is doing it without many of Gillette’s lieutenants. Senior executives who have joined the company in recent months include Pratip Dastidar, Kelly Kambs, Dion Persson and Matthew Stevenson.
“The speed at which we want to build, I need people from my background area,” Varty said.
Open for business
Eight months into the job, Varty sat down this week to discuss the turnaround.
“This company has its challenges, but it has incredible talent,” Varty said.
Varty said as he learned about ServiceMaster one idea stood out — the Terminix focus on homes.
Varty quickly separated Terminix into two pieces, one residential and the other a new unit, commercial. He hired Kambs, a Chicago building products executive, to run the commercial side and recently paid $150 million for Copesan, an alliance of pest control firms.
Copesan lands national service contracts with corporations such as Chipotle, McDonald’s and Starbucks. Varty said he intends to use the Menomonee Falls, Wisconsin-based alliance like a wedge leading Terminix itself to service national corporations.
“Terminix has huge potential,” he
World class?
Is Varty’s arrival good for Memphis? Wall Street traders haven’t doubted him. ServiceMaster’s stock price doubled between 2014 and 2016, and then climbed again. Shares traded at $51.70 on Friday, up almost $11 since Varty came aboard.
In one way, the question doesn’t matter. It’s too soon to say how his new strategy will unfold. And anyway, Varty’s here, ready to look for a house, move in his wife, Dora and Ponyo, settle in Memphis for the long term.
He comes across as a quiet man, almost humble compared to Gillette and his swagger.
Varty took center stage this week at the grand opening. Memphis Mayor Jim Strickland was on stage, too, telling the crowd ServiceMaster’s move into the center city has been the high point of his two years and four months in office.
Varty did nothing on stage to shake that confidence.
“We are building a world-class company that can deliver services consistently,” Varty told the audience.
World class? We’ll have to wait and see.
Ted Evanoff, business columnist of The Commercial Appeal, can be reached at evanoff@commercialappeal.com and (901) 529-2292.