There’s no way to determine how much damage COVID-19 will do to the pest management M&A landscape. While pest management firms should fare better than many other industries, there clearly will be economic damage. That said, the global firms that drove higher valuations recently have done a total “about face,” and deal flow has flipped from waterfall to small trickle. When this happens, valuations pull in, retreating from a remarkable decade of superior performance. But history and current conditions suggest that after the initial shock and economic visibility becomes clearer, things will improve. Pest management firms provide investors favorable returns with higher gross margins than many other industries, and we will be back!
Valuations are predicated on customer relationships, which is a fragile asset. And while quality service and good management keeps attrition predictable during normal times, a crisis of this magnitude raises many unknowns about how the sudden unemployment shock and the consumer outlook for services in general will affect the demand for pest services. What that means is potential purchasers need to model a range of scenarios hoping for the best but preparing for the worst. And this, my friends, means lower valuations for now.
While we continue to have outlets for owners who are interested in selling now, valuations may disappoint. However, for those who have a longer time horizon, we suggest that you work on building margins and recurring revenue in your businesses. This is where no other brokers in the industry can touch our expertise in building pest management businesses. Please visit PCOBookeepers.com or contact me at firstname.lastname@example.org to learn how we can work with you to maximize the value of your firm, and when the time is right we will get you the most money upon exit.
Dan Gordon, CPA
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