Rentokil to buy Terminix: What an amazing time in our industry! Here’s my take
By: Daniel S. Gordon, CPA
Dec. 14 was a huge day for the pest control industry, as a watershed deal was announced. If it closes as expected next year, it will make Rentokil, the world’s largest pest control company, also the largest in North America, leaving Rollins (Orkin) as the only public pure-play pest control company.
The deal calls for each Terminix shareholder to receive 1.069 shares of Rentokil’s ADR plus $11 of cash, valuing the deal at $55 per Terminix share, which is a 47 percent premium on their closing price on Monday, Dec. 13. For those pest industry M&A junkies, that’s 3.6 times revenue.
WILLIAM BLAIR / PCO M&A SPECIALISTS MONTHLY PEST PULSE
PCO M&A & Succession Specialists has teamed up with William Blair & Co, one of the most seasoned Equity Research houses that covers the pest control industry to create the William Blair / PCO M&A Specialists Monthly Pest Pulse index. This index is a collaboration between the fundamental research and insights from the Blair team and the hard data from PCO M&A Specialists sister firm, PCO Bookkeepers,
an outsourced CFO and accounting firm that focuses on the pest control industry with over 300 industry firms as clients that make up over $650 million in annualized revenue.
Our growth estimates are supported by real historical data and vetted by Wall Street experts. The historical data and reports we pull from our clients’ records provide strategic buyers with the components that are most important to building their models including tracking of customer retention, the all-important recurring revenue, and SG&A costs they can use to build their profitability analysis.
Check back for Monthly Index Updates
The Pest Index tracks the monthly performance of 149 different privately held pest control companies across 31 states with combined annual 2020 revenue of $375 million. The purpose of the report is to track the monthly performance of several different U.S. pest markets, including residential, commercial, and termite.
November 2021 Summary
The total U.S. pest control index increased 19.2% year-over-year in November 2021. This marks a clear acceleration from the mid-teens type growth that we have observed over the previous three months. On a sequential basis (from October 2021 to November 2021), the index decreased 8.4% year-over-year, which is a typical result for the month of November.
1. The Residential Pest Index increased 21.3% year-over-year and declined 4.1% on a sequential basis.
2. The Commercial Pest Index increased 15.3% year-over-year and declined 5.2% on a sequential basis.
3. The Wood Destroying (Termite) Index increased 15.7% year-over-year and declined 3.1% on a sequential basis.
4. The Bed Bug Index increased 12.8% year-over-year and declined 9.0% on a sequential basis.
Our Take
The Total U.S. Pest Control Index increased 19.2% year-over-year in November 2021. On a sequential basis, the index decreased 8.4% from October 2021. This index includes recurring and nonrecurring revenue for residential pest, commercial pest, and termite. It does not include residential door-to-door companies.
The total pest index accelerated materially from the growth observed over the last three months (midteens year-over-year growth in August, September, and October). The performance in November was driven by an acceleration across all four sub-indices (residential, commercial, termite, and bed bug).
PCO M&A Specialists Pest Industry Merger & Acquisition Insights
A behind the scenes look at PMP Valuations, deal structure, tax consequences of sale & the state of the market
If you are thinking about what your next steps are in terms of the future of your company and are interested in how to maximize your after – tax value upon sale, this guide is a “must read”.
PCO M&A Specialists Industry Insights
Is Rollins really selling? My take (taxes, taxes, taxes) and what it means to you
On June 4th, I was sitting at my computer doing what every deprived sports fan has been doing during the sports vacuum caused by COVID-19. I was day trading. In addition to the fast-moving stocks I watch, I always keep aneye on pest control industry players because stock price is one of the many factors we use to gauge the market and determine maximum value for our M&A clients.
In the mid-afternoon, Rollins stock popped to an all-time high and within a few minutes dropped 5 percent. Fortunes made and fortunes lost, all in a few minutes. With my curiousity piqued, I started to do a little research on what just happened, and over the news wire I found this…
Breaking: ServiceMaster to sell other brands, change name to Terminix
ServiceMaster will sell its ServiceMaster Brands (SMB) business to Roark Capital and change its name to Terminix at closing. The deal is expected to close in 30 to 60 days, making Terminix a pure pest control play, as the company chases the sky-high Rollins valuation.
SMB is a franchising operation with two primary segments:
• Restore – residential & commercial restoration services following fires, hurricanes, water pipe bursts, etc.; and
• Cleaning – janitorial and residential cleaning services.
How does low interest rate affect the pricing model and what happens to company values if they rise?
As noted in our valuation discussion when using a free cash model for determining the value of a firm one of the factors used in the formula is the required rate of return A.K.A. the hurdle rate.
History of Mergers and Acquisitions in the Pest Control Industry
The M&A activity since Y2K is quite different in that it has been fueled by pest control companies looking to grow their core businesses, find synergies where they can reduce costs and expand their brands. With all this competition to find the best target companies those looking for quality acquisitions have driven the valuation of these quality companies up. With most of this M&A activity coming from domestic players, the entire landscape changed when London based Rentokil did its first blockbuster acquisition in the U.S. in 2006 by purchasing JC Erlich, a multi-state firm out of Pennsylvania with over $100 million in annual revenue …
CLIENT SPOTLIGHTS
