Action Pest Closes & Four M&A Mistakes

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We’re smack dab in the middle of pest control M&A season in the northern hemisphere and transaction multiples continue to creep up.

This morning I chatted with a client who sold his pest control business last year. He said, “Us guys who sold last year are the biggest losers of the bunch. If only I had waited another year…”

Not so fast….There were a lot of guys in 2008 and 2009 saying, “If only I would have pulled the trigger last year.” This is a much worse situation to be in.

In 2007, I watched a company refuse a bona fide offer of $18M only to end up selling for $11M in 2009. Likewise, we have a client who received an $18M offer at the end of 2012 only to see it increase to north of $27M in 2014.

It’s extremely difficult to time the M&A / equity markets and if any of us were really good at it, we’d be making billions in the stock market and not doing what we’re doing.

Although the rising tide of the market lifts all boats, keep in mind that there is much more that goes into  getting the highest price on the sale of your business. An acquirer is only going to pay you what it has to in order to get the deal done. The only reason why it has to pay you more is because you are running a formal, competitive sell-side process causing acquirers to bid higher and higher.

In the M&A world, price is a negotiated value based on the relative bargaining power of the parties, among a variety of other factors.

If you’re a buyer, don’t fear, the extreme majority of sellers get this wrong. It doesn’t matter what the M&A market is doing as a whole, as most sellers remain grossly ignorant of the process — which spells tremendous opportunity for you as a buyer.

With transaction multiples at a 20-year high, there is a reason why acquisition prices on large transactions have increased 80% over the last two years while only increasing 15% to 20% on smaller deals. Almost every one of the larger sellers engages a sophstiticated M&A advisor to run a formal, competitive process, while the smaller operators go it alone… or hire a business broker who is nothing more than a glorified real estate agent. Don’t be that guy.

We discuss this in greater detail in the January 2015 edition of PCT Magazine article entitled: “Four M&A Mistakes.” You can get that here.

In other news, we’re proud to announce that after three years of hard work as the exclusive advisor to Scotts LawnService in the pest control industry, the Action Pest Control transaction has closed for $22.7 million. You can read about it here.

If you are interested in learning how we can sell your business for 20% to 50% more than you could on your own, give us a call now: +1-215-268-7586.

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About Paul Giannamore

Managing Director at The Potomac Company where I head the firm's strategy consulting and investment banking practice focused on the structural pest control and integrated facilities services industries. I write the Pest Control M&A Weekly Commentary and The Potomac Pest Control Executive, newsletters read by thousands pest control professionals in scores of countries (you can subscribe to it below). In a nutshell, I do two things: (1) advise shareholders and senior management of pest management firms on creating value in their businesses, (2) advise sellers on the sale of their businesses. Based in Geneva, Switzerland, I'm a graduate of Cornell University, and I speak Italian, Spanish, Arabic and broken French. Join me on LinkedIn