- April 1, 2022
- Posted by: Marisa Palmieri Shugrue
- Category: Articles
If you’re a pest control company owner who’s looking to exit in the next several years, we have some advice for you.
On a recent episode of the PMP Industry Insiders podcast, Dan Gordon, managing member of PCO M&A Specialists, asked John Myers the following question.
“If I want to sell my pest control business in three to five years, what steps can I take to make my company more valuable or desirable?”
Myers is president and CEO of Rentokil North America, which has completed dozens of acquisitions over the past few years and, most notably, said in December it would buy Terminix for $6.7 billion.
For any company preparing to sell, Myers said he recommends focusing on the following five factors, in no particular order.
1. Increase your percent of recurring revenue
“If you’re at 70 or above, that’s a good place to be,” Myers says, referring to the percent of total revenue from recurring services he likes to see. “When we see 70 or above we feel good about that.”
Myers notes he’s aware that there is a lot of “job work” out there, and he’s not opposed to some revenue coming from one-time services, but it should take a back seat to recurring revenue.
2. Ensure general pest represents half of your revenue (or more)
“We like to see general pest control represent 50-plus percent of revenue,” Myers says, noting that offering some other services may make sense for customer retention purposes. “There are a lot of service offerings out there that are good, but when I see things like gutter cleaning, it’s hard for us to evaluate and value (those services).”
Myers considers termite services separate from general pest, noting 30 percent is a solid percent of revenue for termite. He favors non-fumigation termite services because fumigation is typically sold as one-time work and has to be re-sold every year.
3. Show above-average revenue growth
“If the industry is growing at 4.5 (percent), I love when I see 5-6 percent,” Myers says, referring to revenue growth. “It means you’re outperforming the industry, doing something a little bit better — that’s really helpful.”
4. Have EBITDA of 15 percent or higher
“When I see 15 percent or higher on EBITDA (or earnings before interest, taxes, depreciation and amortization), I’m thinking OK, (this is a) pretty well-run company,” Myers says.
He understands that sometimes there is a good reason for EBITDA to be lower, such as a recent investment in an area that doesn’t have a short-term payback, such as sales resources.
The industry average for EBITDA, according to the PCO Bookkeepers Pest Control Industry Cost Study, is 13.74 percent.
5. Clean up your financials
Myers says he’s always looking for companies that follow good accounting rules, have clean books and reflect quality of earnings.
PCO M&A Specialists and our sister firm, PCO Bookkeepers, can help pest control companies improve all five of the areas above. If you need assistance cleaning up your books or getting your company ready to sell, please contact us today.