Paul Giannamore: [00:00:00] This is a tremendous success story of what you can do in the United States, in the pest control industry. Bobby founded it. You guys built it together with your team and literally exited it on, what I believe to be, the height of the market. I don't know how long it'll run, but I really think that's the case.
Patrick Baldwin: Paul G. Welcome back for Season 2, sir.
Paul Giannamore: Yeah! We are back for Season 2 and we're going to do a lot of things different this season. For the first episode of the season last week, we, of course, interviewed Brett Ponton - the relatively new CEO of Terminix. He's been around for a year. I thought it was a great interview and I really enjoyed meeting him [00:01:00] in person, really, for the first time. I had interacted with him on teams before, but it was finally great to sit down and break bread with him.
Outstanding interview.
Patrick Baldwin: I just can't believe how down to earth, just casual, likable, great guy. I think he's building a great team and I look forward to what they have to do, and, for more than one reason, because they kind of bought me and Bobby's business - not even kinda.
Paul Giannamore: Let's talk about that. The messages and voicemails and emails have poured in. Patrick and Bobby are no longer the owners of 855 Bugs in Texas. And, boy, did we not see this one coming, did we Patrick?
Patrick Baldwin: This came as a surprise. We had not really thought about this for a long time and it sure happened quick. From deciding to pull the trigger to all in - what - 75 days? Maybe 90 days? All said and done?
Paul Giannamore: Yeah. It's been [00:02:00] a busy year so far, so we have to refresh my memory here. Obviously, we've worked with your firm for a decade, right? So, we've done a lot of valuations over the years. And then when did we update your valuation in '21? Was it March, April, somewhere around then?
Patrick Baldwin: Yeah.
Paul Giannamore: We updated the valuation. We were looking at what was going on in the market and that was it.
You and Bobby took a look at it and said, "we can do that. Let's get out the door." And I think we overshot our valuation on that process. Did we not?
Patrick Baldwin: I don't know what you mean by "overshot," but did you kill it? Heck yeah, you did. Golly. Yeah. More than expected. So thanks, Paul. Thanks, Mex.
Paul Giannamore: Over the last 18 months, you've spent a lot of time with sellers who have gone through this process, right. Here, on the Boardroom Buzz, you've talked to them. You've talked to some folks that have actually been in the process, going through the process, but [00:03:00] now you actually have gone through it yourself.
You got an opportunity to meet the various acquirers. You got a front row seat of how the bid process works. What might you have learned?
Patrick Baldwin: Well, I'm indebted, I feel like, for life, to you and the Mex, not for life, but at least for a few weeks, I'll be nice to him. And I'm super grateful to Bobby and the team at 855 Bugs, super grateful to Terminix and their M&A team, and everyone that came in and was involved. It was a fantastic experience.
I will say, also, thank you to the listeners because, like you said, it's been this outpouring of text and phone calls the last couple of days. I have just been moved by the support, this community, the Boardroom Buzz, so thank you all. Let me say this: talking about it and, with all these pest control owners that have, you know, "Hey, what's my business worth?
What's that process like?" All of these questions that they have - I've been able to [00:04:00] explain the process, but not really be able to empathize. Now that I've come out through it on the other side, I can speak to it on a whole 'nother level. There are definitely emotions that go through in selling the business, but man, it was a heck of a process.
It was a great time. I can't say enough great things about, not only Terminix, but also the other M&A teams that came and looked at it. We had great meetings with everyone, but Terminix definitely connected well with us.
Paul Giannamore: If I remember correctly, the Rentokil guys were phenomenal performers in the process. And I think you and the entire team really, really thought very highly of Rentokil as a class act throughout the entire process.
Patrick Baldwin: Yeah. Alex Nigh is, of course, great guy. We had him on Supernova. I've had a few conversations with Alex Nigh before all this - just a stand up guy and, in the end, few factors involved. Terminix definitely came out on top.[00:05:00]
Paul Giannamore: Yeah.
Yeah. Speaking of Alex, he's been around. So, Alex runs the M&A department for Rentokil North America. He's been around, I think, 16 years over at Rentokil? Maybe not that long, but, 2007 maybe? And he's got a phenomenal bedside manner. He really deals with sellers.
He understands what they're going through and he runs a great process over there.
Patrick Baldwin: Had a great meeting with them and a few others. It was interesting seeing even who is interested, who's not interested being in...it's a funny geography. There's not a lot of consolidation in Texas. You know that. And, so, even getting involved, it was fun just to have conversations with some of the other acquirers like, "Hey, are you ready for Texas?"
Paul Giannamore: Well, so let's talk a little bit about that. We did this valuation in March/April. Patrick and Bobby took a look at it. Business was hitting on all cylinders. You know, the market is obviously where it is, and we've talked a lot about it in [00:06:00] recent months, but I think when we started to approach the sell-side process, when you look at the United States, you've got - the east coast, of course, has been the epicenter of M&A activity.
You've got the west coast that has recently heated up - California, the Pacific Northwest, but the center of the country has been relatively quiet. And Texas is a market that's very, very fragmented. You've got the ABC guys, which are massive players, but in the Lone Star State, you've got a lot of small and mid-sized businesses that hadn't really consolidated.
So one of my concerns is always when I look around at the market and I think about acquirers, I try to determine where are their platforms? Does Rentokil have a big platform there? Does Anticimex have a big platform there? What sort of an add-on acquisition could it be? Your business was doing less than 10 million and it's not necessarily a standalone platform so I wasn't sure what the process was going to look like, but it looks like [00:07:00] Terminix is going to allow or require, I guess, 855 Bugs to stand alone in south central, Texas. Right? That'll be the brand down there.
Patrick Baldwin: Yeah. Yeah. A "ring-fence," I think is the term I learned from Andrew Klein who has spent a lot of time with us. He actually came to Waco and had a great time. He was there as part of the onboarding. We could talk about that, but it was fun. It was like, "Paul, will you let me talk to Mike Givlin at Certus and see if he's ever going to come to Texas? Paul, what about Dollar General? Can I call David Billingsley and see when Anticimex wants to make their way to Texas?" And
Paul Giannamore: And what was my response to you, Patrick?
Patrick Baldwin: What's the worst they can say? Right? I think that's what you told me. Or I was putting in your mouth.
Paul Giannamore: I, at first I, when we were running that process, I admonished you - let it - look, you've met all of these guys, right? They've been on the Buzz. You're talking to these guys. You're seeing them out in the market. You're going out there spending time with these guys. But I think I admonished you at first while we were deep into the sell-side process to not call them. Did I not?
It was not early in the [00:08:00] process. It was a last ditch: "Hey, we're wrapping up meetings. Here's your last chance to take a look at this" and I know Mikael Vinje was still running Anticimex North America at the time. And so now that we've met Brian Alexson in Atlanta, interviewed him, who knows? Maybe the answer would have been different if AX was looking at Texas or not, or looking at it differently,
but I think it's an interesting philosophy that - a great philosophy, but wanting to ring-fence 855 Bugs and run it concurrently side by side with Terminix here in the market. I've always thought of it as a Procter & Gamble model when you've got multiple detergents on the shelf next to each other, but you never know and, so, it's another option. It's great for us. They want to leave it that way.
Yeah.
I think it is great. To give some context to Project Black Bear, when we were in Atlanta filming the Atlanta Sessions, which are awesome video interviews, and there's going to be a bunch of cool people coming out here in the coming weeks. I'm not sure how we're going to distribute these yet, but we're down in Atlanta [00:09:00] and we were coming up on the closing of Project Black Bear.
I think it was two o'clock in the morning one night, hanging out with you and Dylan. I was having a drink. Patrick was not. And I was like, listen, we should just film this. I wasn't going to be there that week. I was gonna fly in, literally, for the Ponton interview, but we were going to do the original interview with Brett Ponton in Memphis. It just so happened that the closing was around the same time we were going to do the interview and Terminix had their earnings call the prior week.
Patrick Baldwin: Yeah.
Paul Giannamore: We needed to do the interview after the earnings call because it's a nightmare for these executives getting ready for the earnings releases. It just so happened that we were chatting with Brett.
We could do it in Memphis. We could do it in Texas. Andrew Klein and Christie Grumbos intervened. We just made the decision: let's have Brett come down and he's never gone into acquisition in the pest control industry, so they came down and we did the interview and he popped in and visited the team, which I thought was super [00:10:00] fun.
Patrick Baldwin: It was super fun. It was fantastic. We get a lot of stuff documented and I know we've released an 18 minute video of Project Black Bear, starting at ceremonial closing Monday at the attorney's office and signing some papers and that, what, 60 second closing call? And the dinner that night with Terminix people and the employee announcement and the video we put together.
Then, I got to hang out with Dylan during the week and record a lot of stuff and drive around in a truck that looks like it would never belong to me. And then you came in Thursday, right?
Paul Giannamore: Well, so the problem with all of that is we were going to start Season 2 at the end of July. We'd already done a lot of Atlanta Sessions and then, of course, with this closing coming up, we decided to delay it and come back now. We released Black Bear on Wednesday. We were down there and wrapped up the filming and the interview on Friday afternoon.
Dylan and the team had very narrow turnaround time to get that thing [00:11:00] produced. I mean, there's really some phenomenal footage that we weren't able to put in Project Black Bear. I mean, just really fantastic stuff. And maybe Dylan will do something with it at some point, like a director's cut version or something 'cause there's some funny stuff going on in that situation.
Patrick Baldwin: And then come Friday, right? Brett comes in and Christie Grumbos comes in. Jay Robinson comes in - all from Terminix. Have a great interview with Brett - great guy. And then, after that, go to lunch with them. Bobby joins us for lunch and go to the office and just a meet-and-greet with the employees and just super down to earth to ask, "how'd you end up at 855 Bugs? What's your background?" He literally took off his jacket, rolled up the sleeves and was in the mix with everyone.
Paul Giannamore: I want to touch a little bit on the topic of Terminix. I mean, Patrick, you know, we weren't doing the Buzz at the time, but in the fall of 2019, I had some real words for the Terminix guys 'cause the, you had the big blow up deals, fell apart. I feel like they really didn't live up to a lot of their [00:12:00] commitments, which pissed me off,
quite frankly. I was very critical of Terminix, but rightfully so. We have a new regime over there now. Brett Ponton's in town and, after I released the interview the other day, I received so many emails with questions on really what I thought of Ponton, because you know, you do these things. We have the Buzz and we do interviews and everything super nice, and people are smiling, but, you know, everyone wanted to say, "Okay, Paul, we saw what you published, but like, what did you really think?" And I'm not the type of guy, I mean, if you read any of my commentaries in the past, I mean, I talk about Andy Ransom with an erection. I talk, like, I don't mince words.
And, as specifically said, Brett Ponton is not a corporate douchebag, which actually is a compliment where I come from, and because there were so many corporate douchebag CEOs over there. And so I think, legitimately, Brett's a sharp guy. He's a likable and humble [00:13:00] guy in person. I think that he is, at least what he's told me? He appears to be focused on the right things. You know, my first chat with him, he tracked me down and we had a teams call and he said, "look, Paul, I want to build a relationship with you. We've had issues in the past. I'm a brand new CEO. I'm trying to do the right thing here. Give me a shot. Let's work together."
And, of course, I give these guys a shot. My dealings with Brett since he came on have been fabulous. I would say that our relationship with Terminix now is exactly where it was years ago. So he, Andrew Klein, Christie, Cody, the rest of the team, I think, have done a great job doing what they say they're going to do.
I'm happy with how Brett's running things over there. So that's my honest shake on the situation. I like Brett.
Patrick Baldwin: What's your takeaway from the interview?
Paul Giannamore: The things that I want to talk to guys like [00:14:00] Brett Ponton about are very different than kind of a public interview, right? We did a 60 minute style interview and it was great to talk about his background and his high level strategy, but, as you know, I mean, there were some questions that I asked. He had an entourage there.
He had handlers, I like to call them, or Dylan likes to call him: "his handlers." 'Cause at the end of the day, it's a publicly traded company and I want to get down into capital allocation strategies. I wanted to talk about like the implied equity value of their buybacks and why they made the decision to buy back stock versus do X, Y, and Z, return rates applied rates of return on acquisitions.
I wanted to talk heavily on the retention rates and get into the actual numbers. Eh,
not really appropriate for these interviews. And, quite frankly, we haven't done it with anyone else, right? So, it had nothing to do with Brett. It's just I had a lot of things that I wanted to ask him and I just couldn't do it.
And I get that. Not for public consumption. Although, the lunch afterwards, he was extremely [00:15:00] open. I mean, the guy was very transparent - very, very transparent, but I liked that about him.
Patrick Baldwin: You set me down at the other end of the table with Christie and Jay. We didn't get to talk much sophisticated stuff. Bruce was down there.
Paul Giannamore: I didn't want you saying, "Hey, Brett, what's your favorite color? What sort of pistols do have?" but he does seem, actually, he is kind of a Southern guy, right?
Patrick Baldwin: Oh, yeah. He used to live in Texas. He used to live in Southlake and so he held onto his identity or
Paul Giannamore: His citizenship of the Lone Star State. That's right. A Republic.
Patrick Baldwin: The Republic of Texas. And we did our secret handshake, gun salute, and all that.
Paul Giannamore: I saw that.
Patrick Baldwin: You weren't supposed to see that.
Paul Giannamore: Patrick, in regard to some of the other interviews we've got coming up, there's a lot of them and we're not going to mention all of them. One that I was super excited and I really, really enjoyed was Tim Pollard and Emily Thomas Kendrick from Arrow Exterminators. Now, I've known these guys for a long time and I would take - Kevin Burns is probably one of my closest friends in the industry,
he's a [00:16:00] fantastic guy - so Kevin kind of orchestrated it. We had the interview. Was phenomenal. She is a ball of energy. I mean, like literally, I was exhausted after the interview. I mean, she is just so full of energy, but she's a great leader. She's very sincere and humble. As you know, I've written in the past, "SOBs," right?
"Sons of businessmen," right? Usually, you know, you start getting into the second and third generations, a lot of these guys turn into self-entitled pricks. They end up destroying businesses. And, you know, if that makes anyone feel bad, just look around the industry. You see this: there's a lot of ass clowns who are in the second and third generation just destroying businesses.
She's the opposite. I really truly believe she's got the skills to pay the bills. I was excited. I enjoyed that interview. It was an absolute train wreck because it was like 98 degrees Fahrenheit. We were in the studio and we lost air conditioning. So, as that interview proceeded, we all started to [00:17:00] sweat and then a fly got in, and it just, it was a mess, but interview was great.
And then we got to spend time with Joe Thomas, who is probably the most generous and genuine guy in the industry, the patriarch there at Arrow Exterminators. So we got to have dinner at the secret club, right? There was a restaurant there, no signs, nothing, buried in...
Patrick Baldwin: Oh, it was awesome.
Paul Giannamore: ...like the basement below a garage. It's like a speakeasy. The doors open up out of the book case.
Patrick Baldwin: It's the coolest.
Paul Giannamore: It was cool. And the AC went out there, as well. It was sweltering. So, anyway, great trip. We'll obviously talk a lot about some of these interviews as they start to come out, when they come out. I think, here in Season 2, we're going to do things differently, Patrick. I've been in the pest control industry a long time. Other than using a flyswatter, I, personally, have never killed a bug.
Joe Wilson down at PermaTreat in Virginia - [00:18:00] years ago, I was working with him, he used to always - he's part of Orkin, our partner, Rollins - used to always say to me, "you know, Paul, you've never done an honest day's work in your life, right?
You know, never gone under a crawlspace, really done anything." And he might be right, BUT
I guess I was telling you, while we were in Atlanta, that I can't continue to talk all season long about Sentricon renewals and billing procedures and practices. So we are really going to switch things up in Season 2. We are going to be using a lot of very high quality video and if you haven't seen Project Black Bear yet, and if you haven't seen Brett Ponton's interview yet, you could go to https://www.youtube.com/theboardroombuzz. Subscribe there because we'll continue with our audio programming, but we're also going to put videos out there and we've got a lot of stuff that we're not even going to announce.
We're just going to pop it onto [00:19:00] YouTube. We're going to do a lot of behind the scenes. It is a crazy, crazy, crazy M&A year, which we'll talk about. I'm doing some additional filming of my own down here in Puerto Rico, so we're just going to pop videos. So subscribe and that way you get a notice and you'll be able to indulge.
Patrick Baldwin: Speaking of Project Black Bear, there's also projectblackbear.com, right? That's a - what - two minute clip from Emily on there? If you want a little early teaser to see what's coming from that interview, we'll talk about scale and culture. And also Andrew Klein. We've mentioned his name a couple of times, but we got Andrew to sit down without a scotch for a minute and Andrew opened up about selling to Terminix and onboarding employees and just a great interview.
Paul Giannamore: I didn't realize this: Andrew Klein actually is somewhat of a Moses figure. Now he is Jewish, but I learned he is somewhat like Moses. I told him the other day - we were joking about it, actually, last night, and the Mexican hasn't called him Moses yet, which is the evidence to me [00:20:00] that the Mexican has not watched Black Bear because, had he watched Black Bear, he would be giving Andrew Klein holy hell. So, we'll see.
Patrick Baldwin: It was a great analogy. You got to check it out. It was a great, great analogy.
Paul Giannamore: That's at projectblackbear.com. You can see those videos. When I think about that Ponton interview, Patrick, the funny thing about you is you were so super excited, right? You just closed this transaction. You're having all these meetings. Literally, I think if I didn't put guard rails on you, you would have talked to Ponton the entire time about Project Black Bear.
I was like, "ah, Brett, let's talk about your retention rates." And you're like, "oh, hold on one second. Brett, let's talk about Black Bear again."
Patrick Baldwin: Did you know about this business in Waco? It's really great.
It's kind of a big deal, Paul. For me, at least.
Paul Giannamore: Listen, I, you know, look. You and Bobby and your team - you have a phenomenal team down there - just great salt of the earth people. You guys have built a great business and [00:21:00] this is a tremendous success story of what you can do in the United States in the pest control industry - build a business. Bobby founded it. You guys built it together with your team and literally exited it on what I believe to be, really, the height of the market. I don't know how long it'll run, but I really think that's the case.
Patrick Baldwin: Which is interesting - on the heels of Supernova just a couple months ago - kind of why we took a break and we did Project Black Bear in the background and people asking me after Supernova like "Patrick why - are you going to sell your business? Are you selling? Why aren't you selling?" All this.
Paul Giannamore: I remember that. We did those nine sessions and I think there was even a couple people in the audience that, when they typed in questions, they asked you what you're going to do - are you selling.
Patrick Baldwin: How can you respond other than "no, of course not"?
Paul Giannamore: Yeah. Yeah.
Patrick Baldwin: That's a.
Paul Giannamore: Well, you don't know if, hey, listen, you don't know you're selling until the money clears the bank account and, actually your bank account, not the Mexican's, right? [00:22:00] So you don't know that 'cause deals do get messed up.
Patrick Baldwin: But smooth, right? Going through due diligence and everything we did with Terminix, I mean.
Paul Giannamore: You might not have a lot of context, but, for the most part, your transaction was kind of in that meaty part of the bell curve, you know, 80% of transactions go like that. You do the valuation, you build out the appropriate materials, you set up the auction process. It wasn't a controlled auction per se.
This is a modified auction and we've talked about it on past episodes. You know, we have our meetings and the bid rounds go and we choose a partner and then we get into diligence and we ultimately close it and move pretty quickly. The Terminix folks are far more efficient than they were historically.
That group was in somewhat shambles in 2020. You know, you had some people running the department before, out. Christie Grumbos came from finance. She came in and now she's running it. Cody and a handful of other folks are there to kind of oversee things along with Andrew. Now they've done a great job. So from Terminix's execution perspective, it went smoothly. [00:23:00] From the 855 Bugs side, it went smoothly. You had the Mexican task master in there and, yeah, we got it done. So you are officially out. Now, I have received some emails saying, "what is Patrick going to do now that he is out of 855 Bugs?," but we're going to save some of that. We've got a lot of surprises in Season 2, Patrick.
Patrick Baldwin: I had a couple of people ask me, "what am I going to do with the money now? What's the first thing you're going to buy and splurge?" And, literally, I'm going to Disney World, in case you're wondering. I'm going to Disney World.
Paul Giannamore: That's right. I heard...
Patrick Baldwin: That will be our first little vacation.
Paul Giannamore: But I think you made these Disney reservations way before you even decided to sell the business, though.
Patrick Baldwin: It's true. It was planned. Paul. Thank you. We did get it out and get it done this year in '21, which was a goal, right? Once we figured out what it would look like and run the process or modified process. Right? So I don't know. Timing-wise, after Supernova, I think we said, "Hey, there's just a little bit of time left. This episode will get published the end of August. [00:24:00] What, how much time is left for someone to decide if they really want to sell this year?"
Paul Giannamore: And 2021, you're probably looking at a few weeks. I mean, you know, if I use last year as my guide, this is far busier than it was last year. So last year, we came into 2021. In Potomac, at least on the pest control side, had about $550 million in enterprise value or transaction volume in queue. Right? And I'm talking about sell-side deals. As of August 1st this year, that is ratcheted up to over 2 billion. So, while I'm just talking about Potomac alone, it's advisory practice as over 2 billion active sell-side clients in the pest control industry. That's a lot considering prior years, when you look at anything before this, I mean, there wasn't 2 billion in total acquisition volume done in any one given year.
So will all of that close in 2021? [00:25:00] No. It will not. Folks that are still trying to squeeze something in before the end of the year, you know, I would say by middle of September, you've kind of crossed the point of no return. That's it. It'll be very, very, very difficult. And last year, I mean, if you're like a Harvey Massey or a Joe Thomas or one of these guys that decides to get out, then the acquirers will drop everything and focus on something like that.
But if you're just like us normal guys and you want to get out into the market, yeah. You want to be out right now, literally, as soon as possible 'cause there is that point of no return where you're not going to be able to get out. And last year, it was early September. I think the last process we started last year was on September 18th. And everything after September 18th automatically got pushed into 2021. This year, it's far more congested. So, your guess is as good as mine. We'll see how it plays out, but we're getting there and we're getting there [00:26:00] quickly.
Patrick Baldwin: It's incredible to think $2 billion dollars of what's enterprise value in a $20 billion dollar global gross revenue, not apples to apples. That is a lot of turnover, a lot of consolidation this year. What's it going to look like after this year?
Paul Giannamore: Well, I mean, look, these companies just continue to regenerate, right, you know. Acquisitions take place, employees go out, find or found new businesses, I should say. And what ends up happening, though, is you're starting to actually see that larger companies are literally consolidating now. So we're really starting to see that.
And, as I talked about, when we did, I don't know, we did a presentation.
Patrick Baldwin: "Unhinged?" Was it February?
Paul Giannamore: "Unhinged!" We did "Unhinged." Yes. So the one main theme for 2021 with regard to acquisitions was scarcity because a lot of the quality assets had been acquired. There's still a lot out there, but they're becoming [00:27:00] more and more scarce. And the scarcity value has driven up price. Right after we did Supernova in the middle of June, you know, on Supernova, I talked about how we will see a spike this year and it was in the process of happening and we've seen that now. And its transaction multiples have dramatically eclipsed what was the 2020 high, right? So they ended at Q4 2020 and now we're higher once again. And that will continue until it doesn't and I don't know when that will be.
Patrick Baldwin: All right. Well, best of luck to you and the Mex, getting all these things done this year. Paul, I'm looking forward to Season 2. Again, got more videos coming, a lot of guests coming. Get a little bit, a little bit outside of pest control. Learn from other industries.
Paul Giannamore: Since the beginning of the Boardroom Buzz, I always talked about how I look outside the industry and I feel like a lot of sharp operators, [00:28:00] a lot of real strategists, are constantly looking outside their organization and looking outside of their industries for innovation. I think there's a ton for pest control operators to learn outside of the pest control industry.
And since we talked about that quite a bit in Season 1, I actually want to do that. And so what I intend to do is I intend to bring on some super interesting guests from outside the industry that I have learned from and that I think others would learn from as well. So we've got some cool people on tap. One character - who's on the Forbes 400 list of billionaires - we might literally have to sit down with them, but I think we're going to get them on the season. So we've got some cool stuff.
Patrick Baldwin: Right. Looking forward to it. Paul, thanks again. You and the Mex killed it on Black Bear. Bobby and I are super grateful. Man. It's awesome, coming out of it on this end, just a much deeper appreciation for all that.
Paul Giannamore: Congratulations, Patrick.
Patrick Baldwin: Thanks, man. I'm going to Disney World. [00:29:00]
Paul Giannamore: Yeah.
Patrick Baldwin: All right, Paul, have a great week, man.
Paul Giannamore: You too, Patrick. Until next week.
Patrick Baldwin: All right. We'll see ya, man.
Paul Giannamore: Bye, bye[00:30:00]