Patrick Baldwin: Paul, it’s 2022. In 2021, we had the big Supernova event but the market has changed. This year, we've got Bubble Trouble.
Paul Giannamore: We are now in an era of FED tightening, which is going to have a dramatic impact on asset prices and quite frankly, the value of your pest control business. Over the last couple of years, we've done Aftermath, Unhinged, and Supernova which was by far my favorite event. If you haven't watched that yet, you should go to our Boardroom Buzz YouTube channel, which is YouTube.com/TheBoardroomBuzz. Type in “Supernova” and you'll find it.
It's a great way to get some historical context in preparation for Bubble Trouble, which we're going to be filming and releasing live in May 2022. It's going to be a live event. We're not going to record it. If you sign up on the box below, put your name and email in there, get out an invite, you'll get reminders, you know exactly when it's going to be, and you have an opportunity to ask us questions. It'll be the most important event that we've ever put on. I don't think there's any way that you can miss this if you're thinking about selling your business in the next 6 to 12 months.
Patrick Baldwin: Let's do it.
Paul Giannamore: We're here in San Juan, Puerto Rico with Jay Keating, CEO of PestCo Holdings. Welcome, Jay.
Jay Keating: Thanks, Paul. Good to be here.
Paul Giannamore: I had a fantastic time last night at the PestCo-Pointe closing dinner, so thank you for that.
Jay Keating: Thanks for having us. It’s a beautiful restaurant here on the island. Having Jared and his wife there to celebrate was wonderful. They’re good people.
Paul Giannamore: Jay, I wanted to congratulate you on effectively taking a new position as CEO of PestCo. You've been in it for 90 days maybe?
Jay Keating: Yes, about 90 days. Middle of October 2021.
Paul Giannamore: Before we get into PestCo and Thompson Street and how this is all unfolding here, take me back a little bit. I want to understand Jay Keating, the manager, and Jay Keating, the man. Let's go back. How did you get into pest control?
Jay Keating: It was interesting. My wife and I met in college and we were married for over 34 years. When I got out of school, I was looking for a job and I saw an ad in a newspaper in Marietta, Georgia. My degree is in economics and business administration from a small school in North Georgia called Berry College. That's where we met. I had no money and I didn't have a job. I needed something and there was an advertisement for a job that had a company vehicle. It was a pest control sales technician for SEARS Authorized Termite & Pest Control.
Paul Giannamore: I'm guessing you had no car at the time either.
Jay Keating: No, so I had to find a way to get stuff done. I was young and wanted to do something. I was given an opportunity by All-America SEARS Authorized Termite & Pest Control at the time in 1988 to start as a technician. I tried to listen to the guidance of the people that I was around and the people I had been fortunate to meet and worked my way through that organization working for Chuck Steinmetz as the company grew.
I moved into a supervisory role and then a branch manager role. Following that, I was moved into group management. My supervisory management role was in Florida. I moved back to Georgia in a group manager role where I took over several branches. A few years after that, I was the first region manager working for Chuck and Greg Clendenin in that area. I moved back to Florida in ‘95 to take over all of the operations as the regional operations manager. That business was sold to Sears, Roebuck & Co. by Chuck Steinmetz in ‘97.
Following that, I became the COO and vice president of operations of all of Sears pest control. I was there for the whole thing and was there when we sold it. We had a discussion with Glen Rollins over at Orkin and I was asked to come and join his team, which I was fortunate to have done that. Over the time, I spent most of my time in the southeast division, in region roles, and then in divisional roles both in sales and service.
I had the great privilege of working directly with gentlemen like Herman Borel and John Wilson and learn a lot from them. In a nutshell, I've been exposed to this business from sales to service to operations to acquisitions to everything you can do. I had the opportunity to work for some of the smartest and respected people in the business. Hopefully, I've been able to retain enough of that information to be able to use it effectively for the people here.
Paul Giannamore: After a long stint in pest control, you went into the construction space. How did that happen?
Jay Keating: It was a personal decision. Everything was going well. I was excited about where I was with Orkin, but my children were accomplished athletically and they were going through their time where they were in travel sports and I was missing several of the things that they were doing. The world of soccer and baseball specifically is where I was. People are gone most weekends. They travel to do a lot of stuff as they're going through the recruitment process and into college. In college, there's a lot of travel there, too.
I had no intention of going anywhere but was recruited away by a company in Orlando to be the president and COO of a construction service business. It wasn't exactly recurring revenue in the way we know it in the pest control industry, but it's recurring project revenue. Your relationships are with the major builders like KB Home, Lennar, D.R. Horton, Pulte, and people like that. You still have a recurring revenue channel that was used to that. It's a service business. You're having to install in full, on time, and serve those customers.
I was fortunate to get to work outside this industry and see how some of the same principles and dynamics work not just for the customer, but the employees and the processes involved. Seven years into that, I get to the point where my kids have gone through the process of enjoying their time in athletics and so forth. I got reached out to on LinkedIn by Thompson Street Capital and talked to Jeff Aiello who’s a solid guy. He told me the story about their passion for ‘we found our own businesses’ and gave me some examples of the people they'd worked with.
I had the opportunity to meet him over time and he said, “We'd love you to come run this platform from us. We have found our own businesses in the pest control space and we want to grow them and make them better. Can you come to help us?” The timing was right for the family and the situation was right with the way they treat people. Here I am in Puerto Rico.
Paul Giannamore: If I remember correctly, Jeff and company reached out to you prior to them even doing their first act. They were on the precipice of effectively getting the entry deal done in the space. You got an opportunity to meet with the Thompson Street guys and got a little bit excited getting back into pest.
When I first met you, you were super happy with what you were doing. You love the construction business. You're like, “This is great but this might be an interesting opportunity in pest.” Now you are at a private equity-backed pest control business that has done three consummated deals and is a top 25 US national firm now. I know you're 90 days into this. What sorts of stuff are you doing on a day-to-day basis now?
Jay Keating: Now we're working on synergies. We're working in areas where we have people with who we can cross-pollinate. The platforms we purchased so far are dedicated to certain areas. We have one platform that focuses strictly on multifamily. We have another platform that's residential, which is Pointe. Another platform is commercial, and even more specifically, a lot of restaurant business.
What we're finding is that as we want to greenfield into those areas and cross-pollinate, we have the wherewithal and the expertise with existing people that we got with the acquisitions that can help us to grow. I find that extremely exciting. We remind each other that our phrase is simple: Earn loyalty and create opportunities.
If we're focused on doing those things, earning the loyalty of our customers and the internal and external, and by doing so, growing the business and creating the opportunities for the people in the business, we can do anything we want. We can grow these people in these companies into something that would fit in many different directions. In our first 90 days, we're down the road with that. Within the next 60 days, I know of at least 4 or 5 internal people that we've acquired who are going to be promoted into roles of greater responsibility to do more stuff. It’s exciting to see it take hold.
Paul Giannamore: When I think about the pest control industry, I look around and we've got the old guard, Rollins, Rentokil, Terminix. In recent years, private equity-backed Anticimex has been more aggressive in North America as well as around the world. There are also some other upstarts. We've got Mike Givlin and the company running Certus, which is backed by Imperial Capital. Not for nothing. We've seen private equity firms enter into the sell-side processes in the industry more.
When I look at Thompson Street Capital, those guys have significant resources. It's a $1.3 billion fund that this business is in. Clearly, the equity capital is there. They have the ability to leverage these businesses. There's still a ton of runway in the pest control space. How are you going to carve out your niche or differentiate PestCo versus some of the other strategics that exist, as well as some of the other private equity-backed firms? Is there any strategy that you guys have devised as far as how you're going to differentiate that business?
Jay Keating: At the end of the day, it all comes down to the customer experience. I've learned a long time ago that people talk about you manage, you lead, and you employ. You employ processes and you lead people. What you manage is the customer experience, so by training, cross-pollinating with experts that we have in the field, and finding the best ways both with technology and with different processes that may be developed in the future. Also, looking forward and not staying with the status quo and being hungry to learn more about the industry. Do we create a better experience for the customer, whether that customer is commercial, residential, multifamily, whatever it might be? Do we understand where that's going to be?
In doing so, we separate ourselves sometimes from different people. A lot of people will tell you that. I've listened to some of your podcasts where people talk about the customer experience because it's proven. There are certain things that are simply true. Right now, we're working our way through how that looks for us. I'm excited about not only the resources that Thompson has, but Thompson Street also has the appetite to do this and the history of doing it, we found our own businesses. That's what makes it exciting.
We have resources. We have opportunities out there. There are a lot of people in this industry who are going to get to the point where they're founders of a business and they're looking for a way to comfortably exit their business. More importantly, like we like to do, partner with somebody to help them grow it even further, but also have a liquidity event of their own in the meantime. That's sometimes attractive to people.
There's a lot to learn. I came from the ones that became big and, by the way, their wealth of knowledge in both those organizations. There's a wealth of knowledge from the people who have operations right now that are $1 million, $2 million. There are things they know that maybe haven't made it through to the bigs or whoever they might be. Always be ready to listen, to learn, and maybe incorporating 1 or 2 pieces can make a dramatic difference in an organization. We're always on the lookout for that.
Paul Giannamore: You mentioned the wealth of knowledge from some of the larger players that you've come to acquire over the years as you've been a part of these operations. What was one of the things that may be surprised you or stuck out to you when you first took a look at the Pointe opportunity? Was there anything that you said, “I can't believe those guys are doing or they're doing it so differently.”
Jay Keating: The hardest thing in the world when you're employing people is to remember that everybody wants to do a good job, but sometimes in management, we fail to define what a good job is. People live their days wondering if the world's going to change, if things are going to be different tomorrow, what's the direction of the company? Settling in on the deliverables that people have both on the frontline and anywhere else in the business are critical to people feeling engaged and being successful.
One of the things that Pointe does is they drive their KPIs all the way down to the frontline technician and they publish them daily, not only in the offices but on the iPads and on the technology devices that people have in their trucks. There's an engaged population of people who know how they're doing it. They know when they've done a good job because they see it on a scoreboard, and then they take the time, the care, and the love to celebrate that with others, which I find engaging. It’s something I want to copy throughout our platform.
Paul Giannamore: It’s interesting because I see a new pest control company every day, sometimes half a dozen of them. That was a unique thing. Jared, Kyle, and their team had spent a lot of time developing that Business Intelligence platform over time. They were using Microsoft BI and a variety of platforms. I thought it was a fantastic thing that they were doing.
We're now in early 2022. You spend a lot of time with your M&A team and the Thompson Street guys. What things are you thinking about with regard to the M&A market? We have a lot of uncertainty. We've got the capital markets and we've got Terminix and Rentokil as a possibility. Do you get a sense that it's going to change much this 2022? Do you think it's going to be a replay of 2021?
Jay Keating: We always need to be looking around the corner and trying to see what's there. Right now, I don't see major changes happening people could look at. When we're filming the events happening in Ukraine, which are disturbing, our prayers go out to those people involved in such an awful thing. The way the industry bounces back from things that happen. The play for this is long-term. Finding the right people, consolidating into a bigger business, and then bringing resources to bear through all the platforms that make any platform better than it was when we got them. It will synergistically make a huge difference for the organization.
Paul Giannamore: You've been in the industry for a long time. If you think back to the ‘90s versus today, when you think about the actual market from a competitive perspective of acquiring customers and retaining customers, how do you think it's changed over the last 20 or 30 years?
Jay Keating: In general, the competition's a little bit more sophisticated than it was back then. Being in Central Florida, I was there with a lot of the major players. Mr. Massey's organization is still there and going crazy. Wonderful family and business. They have the opportunity to work with the Terminix people, the Orkin people, Sears, Mr. Don Jamison out of Tennessee, Mr. Goldberg who was at Terminix, and those guys.
There were a lot of other people that were upstarts. At that time, hardworking, dedicated people wanted to do great work, but maybe not as technologically or sophisticated. I'm seeing more of that play in, where there's some technology being brought in and there's some business savvy being brought in at these smaller organizations. They bring a lot to the table we can learn. Just because we learned something twenty years ago doesn't make it right today. There may be something coming in that's worth listening to and seeing if you can duplicate it and use it in other places.
Paul Giannamore: You guys, back in the Sears days, were somewhat pioneers when it came to service protocols, particularly service frequency, the one-time per year service. I don't see that often today. I do run into it from time to time. Let's talk a little bit about that. How did you, Chuck, and the team come up with that protocol? What has happened to that over the year? Is it viable today?
Jay Keating: As far as viable, it’d be hard to say it's not because it was proven way back then. The credit has to go to Chuck, to begin with. People that know Chuck, know he's an entomologist by trade. He knows this business. Over years of blood, sweat, tears, and everything, he developed a process through the right use of materials in the right places in a home where you could treat a home one time and guarantee it for a year.
It doesn't mean we never had to go back to the house but if we did, there was no charge and we’ll be out there. That model set the world on the edge because we were collecting all of the funds on the front end. It wasn't a monthly billing. We would collect $365 versus $30 a month, or we get it all upfront. We were partnered with Sears, Roebuck and Co. It gave us some backing and some guarantee, and we were able to say, “Customers, we're going to make you happy. If we can't, we'll live up to the old-time series guarantee of satisfaction, all your money back.”
We were able to prove that it was viable. The issue is rolling it into another business that's also viable. When you're somebody like Terminix or Orkin or Rentokil, you have a service protocol and a service strategy. To bring something completely counter to that and completely new to that, in my opinion, might be hard to sell internally. You would now be saying to yourself, “If this is right, is this wrong? Are we battling with each other?” I find that it's going to be a challenge.
Paul Giannamore: When you think about the annual service with the guarantee, you guys are collecting all the money in prepaid which is great for cashflow. You are getting all that money upfront. Clearly, different service protocols and integrating them are complicated. From a customer renewal perspective, do you have a sense of whether those annual services are renewed at the same rates that we see today on triannual or quarterly?
Jay Keating: We would measure it clearly. We had a process that I had the opportunity to be heavily involved in. It was a lot of fun. We call it the Gold Book and the Red Book. It was our retention process where specific touchpoints were there where we would call and make sure customers were okay. We may swing by at six months when they have any questions about what they need to do.
There was this consistent reach out. We were at their home applying materials. We were in touch with the customer to make sure that everything was the way it was supposed to be. When we got to renewal time, we had specific targets to try to hit the 1st year and then 2nd-year plus renewals. We were successful in retaining customers in that regard.
Paul Giannamore: Is that something you would try today?
Jay Keating: Not sure yet. We'll have to see how this strategically works with what we currently have.
Paul Giannamore: I know we were chatting a little bit with Jared about PestCo. It will be a distributed business. It doesn't sound like, at least today, there are any plans to have a corporate headquarters. You've got platforms in the South, in the mid-Atlantic, now in the Midwest. You're going to keep everything distributed.
You've been pulling people from the acquisitions that you've made. You've been raising some of these folks up to work more on the national level. What opportunities do you see over time? I look at Rollins and I look at Rentokil, and those companies have acquired a lot of great people through acquisition. If you look at Rollins, a lot of the division presidents came in through acquisitions.
Over time, as a company gets large, it becomes more difficult to allow for upward mobility because Rollins has a lot of these people, whereas smaller companies like Anticimex and Certus starve for talent. There are a lot of opportunities. When we look at PestCo, this is what we've got right now. It's a ground-floor opportunity for a lot of people. As you start to staff this business out over the course of the next year, outside of acquisitions, what other talent do you intend to bring on? How do you intend to grow that operation from a resource perspective?
Jay Keating: A couple of things we'll be looking for in the near future. We'll want somebody to concentrate on the HR area. We want to make sure that our internal customer experience is a good one, and then we have that buttoned up. The information technology, an IT person, there's a lot to do with integration. The company integration is the biggest part of these acquisitions. It's not just buying them dinner. Now the work starts, how do you make this happen and grow this business, not lose the customers, send a wrong message, or do something simple like mess up somebody's first paycheck?
Don't do those things. You want to make sure you have the talent available to make sure you execute well. Hopefully, what I can bring to the table among the team is to develop the people we currently have to be more attractive over time. Their value increases, they've got more to do, and they've learned more. They're having a resume created where they're doing more stuff and creating more results. I find that exciting. I was afforded that opportunity. I was given that opportunity. I'm grateful to those people I got to work for. I would love to pass that on and give that same chance to others.
Paul Giannamore: Is there a level of centralization? Anticimex loves to talk about their decentralized model. You've got some of the bigger firms that are highly centralized. If you've given much thought as to the level of how much will take place at the actual operating company level as far as HR, finance, accounting, and those back-office functions versus at a corporate level. I know those are decisions you've not even had to make now because you're making these acquisitions, but when you think about it philosophically, where's your head at?
Jay Keating: Whatever serves the customer best. I don't mean that to be a throwaway line. I'm going to let the data drive that decision. I'm going to let the data tell me, “Here's what makes the most sense fiscally. Here's what makes the most sense service-wise to the internal customer.” What is the best way we can serve people so they can serve others? In doing so, we want to be fiscally responsible and we want to grow the business. This is a business. We are trying to make a profitable growth-oriented business. Those decisions are yet to be made. I'm open to them and the data will prove where we should go next.
Paul Giannamore: I own a $10 million pest control business, for example, and I'm exploring some strategic alternatives. When you think about the opportunities for individuals out in the market, why might I consider PestCo as an option?
Jay Keating: If you were that person saying that your focus was your customers were taken care of, there was a place for your people, and your people could be part of something bigger than they're part of now. You may or may not want to have some equity left in, too. You may want to take a liquidity event and reinvest part of it to be part of that growth opportunity. We're the people you might want to talk to. That's what we specialize in. It's great partnering with people.
I don't think any of us has all the answers. No person that we've bought or hired has all the answers. The people that we've talked to so far know they don't have all the answers. We're a learning and open to learn organization. We're looking for more people like that who say, “I've taken this to where I can. I'd like some help because there are some key things here we do well. I'd like to take it to the next level. Can I get a partner who can see things the same?” Then we find out if we see things the same. Do we understand the business the same way? Do we see things the way they see things? If so, we’d love the opportunity to talk to them and bring them in.
Paul Giannamore: In some of the conversations I've had with Jeff, your partner there at Thompson Street, I point-blank asked him, “Are owners required to roll equity in a partner?” What he specifically said to me is, “We love to partner with founders and management teams. We want us to have skin in the game, them to have skin in the game. We view everyone as a partner.”
There are certain opportunities where somebody has an asset, and for one way, there's a reason or another somebody wants to exit and completely change the control. Is it your mindset that it's an option for somebody that might want to have a partner and growth going forward? As well as somebody who says, “It's time for me to retire and I will look for a buyer,” is PestCo somebody they should talk to?
Jay Keating: Absolutely. Because in that discussion, as we talk to each other, we may find out that working for that person are 2 or 3 key individuals who have been running it day-to-day anyway. There are people who have been overseeing our first acquisition. The owner has stepped away, but his operating person runs the organization and reports directly to me. I have the opportunity to work with him every day, which is wonderful. He's good at what he does. It's giving him a chance to spread his wings and do more than he was doing prior to the sale.
The owner got what he wanted by getting out of the business. It's a wonderful mix. It works for both cases. We have to make sure, do all the numbers work? Does the data make sense? Does the philosophy make sense? If so, we're absolutely open. We'd be an attractive option for people to look at and say, “They've got the wherewithal. Do I want to be part of that?”
Paul Giannamore: Jay, I know that this was premature in having you on here. You were a trooper, you're 90 days into this, but you were down here in Puerto Rico for the closing dinner. You guys are down here doing due diligence on another transaction. We've got the cameras fired up. I'd love to talk to the CEOs of these businesses as you can see on The Buzz. I thought it'd be a great opportunity to have you on here, although there are a lot of things you can't answer. What are the chances we can get you back down to PR in about a year from now to talk about first-year growth?
Jay Keating: I would enjoy it. I would enjoy being at dinner with Paul. I’d probably bring my wife because I know she would enjoy it. It would be great to have us together. Let's pencil that in and see what we can do about making that happen.
Paul Giannamore: Congratulations on your new position, Jay. Congratulations on your success. I look forward to seeing you in a year down here in PR.
Jay Keating: Thank you, Paul. Appreciate it.
SEARS Authorized Termite & Pest Control