Proven Expertise in Brokering Pest Management Business Resulting in Maximum Value to Our Clients a Division of PCO Bookkeepers Over 175 Million Dollars in Sell Side Transactions All Negotiated at Some of The Highest Pest Control Industry Valuations in History

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.

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The Pest Index tracks the monthly performance of 140 different privately held pest control companies across 30 states with combined annual 2019 revenue of $320 million. The purpose of the report is to track the monthly performance of several different U.S. pest markets, including residential, commercial, and termite.

March 2021 Summary

The total U.S. pest control index increased 17.3% year-over-year in March 2021. This marks a
significant acceleration from January and February. The index increased 21.3% on a sequential basis, which is higher than
normal seasonal trends (up 10% in March 2020 and 16% in March 2019). This index includes recurring and nonrecurring
revenue for residential pest, commercial pest, and termite. It does not include residential door-to-door companies.
• The Residential Pest Index increased 23.4% year-over-year and 19.4% on a sequential basis.
• The Commercial Pest Index increased 17.4% year-over-year and 12.4% on a sequential basis.
• The Wood Destroying (Termite) Index increased 9.8% year-over-year and 40.9% on a sequential basis.
• The Bed Bug Index decreased 14.5% year-over-year and increased 27.3% on a sequential basis.

Our Take

The total U.S. pest index increased 17% year-over-year in March, marking a strong acceleration from the increases observed in January (up 5%) and February (up 6%). Some of this increase can be attributed to an easier comparison with last year, as the last two weeks of March 2020 were disrupted by the coronavirus pandemic. However, even after taking the easier comparison into account, the result for March 2021 is very strong and indicative of a healthy pest market in the United States.

All three pest control markets (residential, commercial, termite) experienced a significant sequential uptick in March. The residential index accelerated to 23% growth in March, up from 12% growth in February. The commercial pest index accelerated to 17% growth in March, up from 6% growth in February. The termite index accelerated to 10% growth in March, up from flat revenue in February. Furthermore, the strong sequential increase in bed bug revenue may indicate that sales in this market troughed in 2020.

March’s results support the thesis that the U.S. pest control market remains poised for another strong year of growth, as higher penetration rates in the residential market persist in 2021 and are supplemented by a rebound in commercial pest sales. Based on the performance of this index, we believe both Rollins (ROL $35.18; Outperform) and Terminix (TMX $48.14; Outperform) revenue will likely exceed current investor expectations for 2021. This is also true for Ecolab’s (ECL $223.98; Outperform) $800 million commercial pest business, which declined 3% organically in 2020.

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…

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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.

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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.

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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 …

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CLIENT SPOTLIGHTS

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