What’s the state of pest industry M&A amid the COVID-19 pandemic?

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Last week, Dan Gordon, managing partner of PCO M&A Specialists, addressed mergers and acquisitions in the pest management industry in the first of a series of webinars titled “COVID-Proofing Your Pest Control Business.”

The webinars are presented by PCO M&A Specialists’ sister firm PCO Bookkeepers and Coalmarch.

Watch the entire webinar replay here.

Sign up for future sessions here.

Edited transcript:

We’ve done over $150 million worth of mergers and acquisitions in the past 14 months. For now, M&A is shut down with many of the strategic buyers. This creates a tremendous opportunity for private equity firms or domestic companies. Rentokil issued a press release on March 25, saying they’re shutting down all M&A activity, there are no bonuses for their senior managers and they are saving money every which way they can.

We’ve also had a deal pulled from Anticimex that was ready to close on March 27. They said that, “In the current environment we’re just not comfortable doing this deal. We will do it when all of this madness ends.”

Remember, Rentokil is a worldwide company and Anticimex is a worldwide company. Those two specifically have huge operations in Italy and Spain and some of the areas that are really being affected by this. Rentokil, from what I understand, is down 40 or 45 percent in Italy; people just aren’t allowed to do anything there or in Spain, as well. Once you get those two players to take a hiatus from this M&A market, if you’re a private equity firm or you’re a company looking to make purchases somewhere in North America, you’re going to have the pick of the litter because you’re not going to be up against them.

So I think this could be a good thing if you have the nerve, and you’ve got to have a lot of nerve to buy a pest control company right now. If you’re going to buy a pest control company that did $1 million last year, if the pandemic goes on for six months, what does it do to you pest control company you think will do $1 million? It may be significantly less.

The other thing is if you look at the stock market, assets have revalued. The big high-flying deals that you saw – three times revenue — I think that they’re going to go away. You are going to see more realistic multiples, but I think that companies that weren’t getting those three multiples, that were getting reasonable amounts, I don’t think that they’re going to pull back at all. That’s mainly your smaller companies, maybe some companies that are not as stellar as some of the top companies. Those values aren’t going to move back as quickly, so we could be in good shape there.

But until the stay-at-home orders are lifted, I don’t see any meaningful offers being made to purchasers. Everybody’s scared. Luckily, we’ve got a couple of deals in with one of the private equity group-based purchasers who have told us that they’re going to honor all of the LOIs that they put out there, so we’re looking forward to that. But if this thing ends in May or June, I think we’ll be back in business with mergers and acquisitions by the fall. I just I don’t think that it’s going to be as hot.

I don’t believe the pandemic is just going to end and we’re going to go back to where we were. There’s been significant economic damage done, and there’s some more on the way, and it’s going to take a little time to get back. Are we going to get through it? Yes. Is it going to be hard? Yes. Pest control and lawn care seem to be terrific, recession-resistant businesses that have a tremendous resiliency, and so I think that M&A, while it’s going to be slowed, it’s not going to be over.