As it’s possible you’ll recall, Rentokil introduced on Dec. 14, 2021, a $6.7 billion deal to accumulate Terminix. It could make Rentokil the biggest pest management firm in North America. The transaction is predicted to shut this yr, towards the top of the third quarter, in keeping with Rentokil.
What classes can pest management firm homeowners study from this main deal? Rentokil North America President and CEO John Myers lately was a visitor on the Pest Administration Skilled (PMP) Business Insider podcast I host with Coalmarch CEO Donnie Shelton. You possibly can entry the episode on-line at PMPIndustryInsider.com/put up/episode-74.
We wished to know: If any of our listeners wish to exit their firm and/or the pest management trade within the subsequent three to 5 years, what steps can they take to make their firm extra fascinating and maximize its worth?
DESIRABLE COMPANY CHARACTERISTICS
As a result of my mergers and acquisitions division, PCO M&A Specialists, handles so many offers with Myers and his staff, I knew he would supply an ideal snippet of recommendation we might share with our listeners. However moderately than a snippet, he gave us a full-blown view into what the trade’s largest pest administration agency seems to be for in a possible acquisition. The next are 5 traits for which Myers and his staff look:
- Improve your % of recurring income. “For those who’re at 70 % or above, that’s a superb place to be,” Myers mentioned, referring to the proportion of whole income from recurring companies he likes to see. However he additionally famous that there’s a lot of one-time work on the market, and he’s not against some income coming from one-time companies. It ought to take a again seat to recurring income, nonetheless.
- Guarantee basic pest management represents half of your income or extra. “We prefer to see basic pest management signify 50-plus % of income,” Myers mentioned, noting that providing another companies might make sense for buyer retention functions. “There are a variety of service choices on the market which can be good, however once I see issues like gutter cleansing, it’s laborious for us to judge and worth [those services].” Myers considers termite companies separate from basic pest management, noting 30 % is a strong proportion of income for termite management companies. He favors non-fumigation termite management companies as a result of fumigation sometimes is bought as one-time work and should be re-sold yearly.
- Present above-average progress. “If the trade is rising at 4.5 % [revenue growth], I like once I see 5 % to six %,” Myers mentioned. “It means you’re outperforming the trade, doing one thing just a little bit higher — that’s actually useful.”
Have earnings earlier than curiosity, taxes, depreciation and amortization (EBITDA) of 15 % or larger. “Once I see 15 % or larger on EBITDA, I’m pondering [this is a] fairly well-run firm,” Myers mentioned. He added that generally, there’s a good motive for EBITDA to be decrease, corresponding to a latest funding in an space that doesn’t have a short-term payback, corresponding to gross sales assets. Be aware that the trade common for EBITDA, in keeping with the PCO Bookkeepers’ Pest Management Business Value Examine, is 13.74 %. (Supply: PCOBookeepers.com/profitability.) Nevertheless, when extra proprietor compensation and different proprietor objects are added again, that quantity normally jumps larger than 15 %.
- Clear up your financials. Myers mentioned he’s at all times on the lookout for corporations that comply with good accounting guidelines, have clear books, and replicate high quality earnings.
Whereas we mentioned all these things within the context of exiting the pest management trade, I’d add that even if you’re not seeking to exit, maximizing these 5 traits will put your agency within the elite “best-in-class” class on the subject of working a profitable enterprise.