Pest Control Industry                                   – M&A Review                                   JANUARY 2013RKJ Par...
II. 2012 AND 2013 YEAR TO DATE M&A REVIEWAlthough there are several very large operators in the pest control industry (Ter...
sellers to the table these days. Money is relatively cheap. Interest rates have reached historical lows. The pest   contro...
In the pest control industry, M&A activity is largely driven by life events. The great majority of pest control operators ...
ABOUT RKJ PARTNERS, LLCRKJ is an established advisor to leading lower middle-market growth companies. We provide our clien...
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RKJ Partners - Pest Control Industry M&A Review - January 2013

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RKJ Partners presents our view of the pest control M&A market

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RKJ Partners - Pest Control Industry M&A Review - January 2013

  1. 1. Pest Control Industry – M&A Review JANUARY 2013RKJ Partners, LLC is anAtlanta, Georgia based I. OVERVIEWinvestment banking firmdesigned to specifically assist RKJ Partners, LLC (“RKJ”) noted continued momentum for M&A activity in thelower middle-market growth pest control services industry. All indicators we are monitoring, combined withcompanies in executingtransactions between $2MM proprietary feedback received from the market, strengthen our belief in theto $75MM. fact that 2013 promises to be another active year for M&A activity. RKJ believes the following attributes will contribute to the continued growth of industry:IN THIS ISSUE: ❖ As the US economy continues to recover, the housing market is recoveringOverview 1 as well. This alone should increase demand from homeowners for regular inspections and treatments of termites and other pests.2012 and 2013 YTD M&A Review 2 ❖ Hotel and restaurant industry standards and regulations are creating increased demand for pest control services. The recent uptick in bed bug2013 M&A Outlook 3 outbreaks has further propelled the demand for professional services. ❖ The trend toward organic and environmentally friendly products meansAbout RKJ Partners, LLC 4 more opportunity for the pest control industry. Less toxic pest control products stay in the environment for shorter periods when compared to toxic products and require more frequent application. The shift to these newer products will require commercial and residential customers to request more visits from pest control companies. ❖ The HACCP, or Hazardous Analysis and Critical Control Point, is a programCYRIL JONES put forth by the FDA to reduce food contamination. As a result, clients inManaging Partner the food industry will require increased services from pest controlcyril@rkjpartners.com companies. ❖ Foreign ants have no natural predators. Their eradication depends on organized pest control activity. Though the southern region of the US has aGREGORY FICKLIN large fire ant infestation, the fast breeding insects are adapting to colderManaging Director weather and becoming problems for crops, wildlife, and people in thegreg@rkjpartners.com northern region of the US as well. ❖ Sophisticated technological developments have increased the accuracy of finding termites, pests, or rodents and are becoming more and more common in the pest control industry. Through the utilization of technology, operators work more efficiently, thereby increasing operating margins. ❖ The US Small Business Administration (SBA) increased the small business size standard for the pest control service industry from $7 million to $10RKJ PARTNERS, LLC million. Small business size standards determine eligibility for small4514 Chamblee Dunwoody Rd. business assistance and for federal contracts set aside for small business.Suite 170 Therefore, more operators will have the ability to bid for federal contracts.Atlanta, Georgia 30338p. 404.963.8592f. 404.920.2159www.rkjpartners.comom
  2. 2. II. 2012 AND 2013 YEAR TO DATE M&A REVIEWAlthough there are several very large operators in the pest control industry (Terminix, Orkin, Rentokil), a significantportion of the industry continues to be populated by regional operators and “mom and pop” operators. As evidencedby the exhibit presented below, large operators continue to fuel a portion of its growth initiatives via multiple strategicacquisitions. The significant upswing in completed transactions was fueled not only by the consolidation efforts of thelargest industry players, but also by smaller, regional players and financial buyers as well. Closed Date Buyer Target Deal Size ($ m illions) 01/09/13 Terminix McCauley Brothers Termite and Pest Services NA 01/03/13 Hoffman Exterminating Luvin Bugs Termite and Pest Control NA 12/13/12 Knockout Pest Control Q Exterminators NA 12/10/12 Rentokil Initial plc Eden Advanced Pest Technologies, Inc. 10.0 12/05/12 Sprague Pest Solutions Golden Services NA 11/29/12 Arrow Exterminators, Inc. Terminator Pest Control NA 11/21/12 Arrow Exterminators, Inc. Can Eliminate Pest Control NA 11/09/12 Arrow Exterminators, Inc. Norton Exterminating NA 11/02/12 Massey Services GreenFrog Services NA 10/23/12 Rollins, Inc (Orkin Brand) Partners Pest Control of the Valley NA 10/05/12 Rentokil Initial plc Maykar Pest Control NA 10/03/12 Rollins, Inc (Orkin Brand) Hulett Environmental Services (Central FL) NA 10/02/12 ChemTec Pest Control Thomas Pest Control Company NA 09/25/12 Rollins, Inc (Orkin Brand) Tri-County Pest Control South NA 09/25/12 Rentokil Initial plc Western Exterminators 114.6 09/22/12 Dodson Pest Control Scotts Pest Control NA 08/31/12 Massey Services Myers Services of Texas NA 08/29/12 Arrow Exterminators, Inc. W.H. Wilson Termite & Pest Service NA 08/06/12 Rentokil Initial plc Modus FM 5.3 07/31/12 Terminix Schendel Pest Services NA 07/17/12 Arrow Exterminators, Inc. The Pest Terminator NA 07/03/12 Arrow Exterminators, Inc. Spencer Pest Services of North Charleston NA 06/13/12 Arrow Exterminators, Inc. Al Hoffers Termite, Pest & Law n NA 05/30/12 Rollins, Inc (Orkin Brand) Big Deal Exterminating of Puerto Rico NA 05/16/12 Rollins, Inc (Orkin Brand) Evins Pest Control NA 04/03/12 EQT VI (Financial Buyer) Anticimex Group NA 03/31/12 Senske Pest Control Guardian Pest Defense NA 02/15/12 Rollins, Inc (Orkin Brand) Craig Thomas Pest Control NA 02/07/12 Arrow Exterminators, Inc. Spencer Pest Services NA 02/05/12 Arrow Environmental Services Ant-Ser Termite & Pest Control NAIn assessing deal activity for the pest control industry, RKJ has identified some key themes as catalysts for this buyingtrend, which include: Recession Resistant Industry In good economic times and in bad economic times, clients keep calling because pest control isn’t a luxury — it is a necessity. This fact alone makes pest control an industry that is highly attractive to suitors from the outside that are looking to buy a business, and pest control veterans who want to expand their operations. Pest control appears to be a smart investment choice even when Wall Street looks like a deserted alley. And, in the M&A world, pest control is a solid, proven investment. Acquisitions Remain Material Aspect of Operators Growth Strategy One reason industry specific M&A did not completely slow down during the recent economic downturn is because acquisitions are part of the growth plan for strong companies. They need new customers to fuel that growth and one way to get them is through acquisition. Factors such as access to capital and taxes are possibly driving more 2 RKJ PARTNERS, LLC: PEST CONTROL INDUSTRY - M&A REVIEW
  3. 3. sellers to the table these days. Money is relatively cheap. Interest rates have reached historical lows. The pest control industry is comprised of thousands of companies moving slowly toward more consolidation. Qualified buyers are going to continue to seek out acquisition opportunities to increase market share, improve efficiency and add experienced management. Continued Interest from Industry “Neophytes” A big difference in pest control M&A today when compared to a few years ago is the number of buyers from outside the industry. Approximately sixteen percent of transactions completed between 2009 and 2012 involved buyers that were new to the pest control industry.III. 2013 M&A OUTLOOKAs the baby boomers continue to exit their businesses at a rapid pace, opportunistic, cash-rich acquirers will continueto be in a position to seize opportunity. Quality sellers in the pest control industry should continue to see favorablevaluations over the near-term and not-so-quality sellers will see less exit opportunities as the months’ progress.For buyers, what makes one company attractive when compared to another company? A number of factors play intoa pest control firm’s value to a buyer, and the more information a company can provide potential buyers, the better.Aside from profitability and a sound balance sheet, here is a roundup of qualities buyers seek in a pest controlbusiness for sale. ❖ Recurring revenues: Contracts with long-time customers and proof of service and payment; ❖ Strong management: Leaders with a track record; ❖ Committed employees: Skilled, loyal technicians; ❖ Reputation: A good name in the service area and industry; ❖ Company culture: Sharing the same fundamental values; ❖ Customer relationships: Strong ties with customers who renew year after year; ❖ Service mix: Offering services that are new to the buyer; ❖ Geography: Located in the same service area (buyers want to increase market density) or in another territory/state (buyers want to expand their footprint).RKJ’s predicts M&A activity in the pest control industry will continue at a healthy pace throughout 2013. Asconsistent with the views presented in our 2012 report, we continue to believe the following fundamentals willsupport continued deal flow for the remainder of the year: ❖ Highly fragmented industry with thousands of companies moving toward consolidation ❖ Well-capitalized national and regional players with a strong desire to diversify their customer base while establishing themselves as the “acquirer of choice” ❖ Cheap money (i.e. low interest rates) is decreasing the cost of capital, which is supporting an increased level of M&A activity and business valuations in general ❖ Anticipated rise in bed bug customer base due to increasing public infestations 3 RKJ PARTNERS, LLC: PEST CONTROL INDUSTRY - M&A REVIEW
  4. 4. In the pest control industry, M&A activity is largely driven by life events. The great majority of pest control operators donot “time the market” to get the best possible acquisition multiple for the sale of their businesses. Pest controloperators sell their businesses for personal reasons, such as death, divorce, burnout, illness, retirement, etc. Saledecisions for life events can be deferred in troubled times, but they cannot be avoided altogether, and we believe thatpest control operators will seize the opportunity in 2013 to sell when the M&A market is still relatively strong. 4 RKJ PARTNERS, LLC: PEST CONTROL INDUSTRY - M&A REVIEW
  5. 5. ABOUT RKJ PARTNERS, LLCRKJ is an established advisor to leading lower middle-market growth companies. We provide our clients withexperienced-based solutions and unbiased advice. Our comprehensive array of strategic advisory and executioncapabilities allows us to meet the needs of our clients and provide an outstanding level of service in connection with avariety of transaction processes, including:❖ CAPITAL ADVISORY: RKJ possesses substantial expertise in assisting lower middle-market clients raise capital to fund growth strategies. Whether the capital source is senior debt, mezzanine/subordinated debt, private equity, or venture capital, RKJ has both extensive and relevant relationships within the capital community to enable the deployment of optimal solutions for our clients.❖ MERGERS & ACQUISITIONS: RKJ serves as a trusted advisor in executing merger and acquisition transactions for lower middle-market clients. In addition to our significant investment banking transactional experience, RKJ’s bankers have owned businesses and have served in interim CFO roles for clients. As a result of our experiences as business owners and senior level managers, RKJ’s bankers are able to bring a unique perspective to the mergers and acquisitions process. RKJ’s mergers and acquisitions services include:  Buy-side and Sell-side Advisory  Divestitures  Leveraged & Management Buyouts❖ STRATEGIC ADVISORY: RKJ provides financial advisory services to owners, management, shareholders and their boards to assist in the evaluation strategic alternatives and options for extending and/or maximizing shareholder value. RKJ’s advisory services include:  Business Valuations  Capital Structuring & Planning  Negotiating Joint Ventures  Strategic Business Development 5 RKJ PARTNERS, LLC: PEST CONTROL INDUSTRY - M&A REVIEW

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