5 Stages of Selling a Pest Control Business

When Jodi McMaster reflects on the experience of supporting her husband, Rob McMaster, in selling his pest control business, she breaks the process down into five phases.

She says the phases are:

1. Going to market
2. Coming to terms
3. Doing due diligence
4. Making it official
5. Closing

The McMasters weren’t familiar with the sales process before engaging PCO M&A Specialists in early 2020. They weren’t sure if they wanted to sell at the time, but they were looking to better understand their firm’s value when they reached out to Dan Gordon.

Though they were pleased with the results of their eventual sale, Jodi McMaster says they would have been better off had they understood the process earlier. In hindsight, she wishes they had engaged a broker at least a year before beginning the process.

After all, most pest control operators will only go through the steps to sell their business one time. It’s important to get it right.

Here’s what each of those steps entails:

Going to market

This phase begins with a business owner who’s interested in potentially selling his or her business contacting a broker like PCO M&A Specialists and signing a nondisclosure agreement (NDA).

Next, when the owner decides to proceed, he or she signs an engagement letter to retain the broker’s services. The engagement letter lays out the broker’s duties and compensation, which may include a nonrefundable retainer deposit and a success fee, which is a percentage of the sale price. Typically, the retainer deposit is applied toward the success fee when the deal closes.

Once formally engaged, the broker’s analysis begins. In our case, the PCO M&A Specialists team dives into your financials and services; accesses your software systems and other nonelectronic records to dissect the company; learns about your strengths, problems, labor force composition, customer base, geographic footprint, number of routes, number of technicians; and more.

Our team also collects data buyers would like to know, such as core business operations and policies, and asks your goals and objectives.

Next, we assemble a confidential business memorandum, commonly called the Board Book. This document showcases your business to potential buyers. It’s the key marketing and executive summary provided to potential buyers once they have executed a confidentiality and nondisclosure agreement.

Potential buyers will ask us questions about your business to understand how your firm fits into their plans.

Coming to terms

Once the field of interested and qualified buyers is narrowed, we’ll solicit prospects to provide a letter of intent (LOI), which contains the material terms of the offer being proposed. We’ll review LOIs with you to determine if any of them meet your expectations and to discuss benefits and disadvantages of the offers. Next, we’ll propose changes to the LOIs to sweeten the deals in terms or price, terms and/or legal stipulations. Finally, you’ll select and sign the LOI that suits you best.

Doing due diligence

Once the LOI is signed, the buyer’s due diligence phase begins. Due diligence is conducted electronically using a data vault that contains important records a buyer requests during this phase, which takes one to four weeks.

Due diligence is the process whereby the purchaser confirms what the Board Book says about your company makeup, finances, operations, integrity of management, as well as if the buyer wants to move forward with the transaction. The grueling process entails gathering tax records, corporate governance documents, policies and procedures, along with payroll and banking records. We’ll help you assemble all of these items, and we’ll also represent you during the in-person due diligence meeting.

Making it official

Once due diligence is completed, a buyer will draft the definitive contract – usually an asset purchase agreement (APA). Stock deals are uncommon, although they’re possible. We’ll review, comment and edit it on your behalf and work with your attorney and CPA to help them review it.

The large buyers have distinctive APAs with different clauses, so sellers must be careful, especially regarding indemnities, representations, warranties and covenants. The APA also refers to disclosure schedules, such as a list of assets purchased, assets excluded from purchase, liabilities assumed, liabilities not being assumed. Also included is a list of employees and their compensation details, a customer list, a list of insurance policies, claims and lawsuits, A/R and A/P aging reports, a list of phone numbers, websites and social media platforms, a list of prepaid customer accounts, a list of vehicles, as well as any permits and licenses, etc.

There also may be ancillary agreements as exhibits to the APA (e.g., employment and independent contractor agreements, bill of sale, assignment and assumption agreements, noncompete agreements, promissory notes, etc.)

Closing

Finally, the closing date for the transaction is scheduled and all contract documents signed and held in escrow until funds are delivered via bank wire. Sometimes the APA is executed and the deal closes on the same day; other times the APA is signed first and then closing occurs later if conditions have to be satisfied before a closing can occur (e.g., financing approval, landlord consent, employee meeting, HR issues). The closing itself is usually a 10- to 15-minute call with both parties on the phone to confirm all signatures and conditions are completed. Finally, there’s a “congrats” to all as the deal is done with receipt of funds confirmed by you, the seller.