Pest Control Mergers & Acquisitions (M&A) – Weekly Commentary – May 21, 2018

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In this week’s commentary, we’ll be discussing:

  • Market Overview // Rentokil Acquires PCT Top 100 Advanced Pest Management
  • The Long Read: Should You Knock Doors? The Economics of Door-to-Door Sales
  • What Do You Really Need in Terms of M&A Tax Advice?

Market Overview // Rentokil Acquires APM

The month of May opened with a bang as winter transactions have finally started to close: APM, then Killingsworth and finally Coopers on May 15th.

I am thrilled to have completed APM’s sale to Rentokil. APM is a PCT Top 100 company and the owners of APM are literally the second business owners I met in the pest control industry way back in 2003. Like every deal, this was a competitive process. This was a company that we advised for three years prior to going out to market as we prepared the business for sale.

Nam Kreer, one of the two APM shareholders, was kind to comment: “Paul Giannamore is without a doubt the best in his field in our industry. Ours was certainly not the largest transaction for Paul or Potomac, however, we were treated like we were his only clients. Paul always had the best interest of me and my family in mind from start to close. Our 3 year journey began with my inherent skepticism and distrust of business brokers evolving into my literally trusting Paul with my family’s future with no qualms whatsoever. Thank you Paul.”

This is a short week as I am off to Madrid for meetings with some Spanish companies and then to see our friends at Anticimex next week in Stockholm.

This week’s primary read is on knocking doors.

Should You Knock Doors? The Economics of Door-to-Door Sales

Illustration: PCT Magazine, Feb 2016

I continue to get a lot of questions from traditional pest control companies looking to start a door-to-door sales program. People look at some of the big players like Alterra and EcoShield having sold millions of dollars in operations to the Big 3 and think that they are missing out.

However, for 99.9% of the companies out there, door-to-door sales is a black hole rather than a way to supercharge growth. There are companies out there doing in the right way, but most are not.

In this week’s article, I tried to provide some background as to the economics of door-to-door sales and why you shouldn’t even bother yourself thinking about it. You can read all about it here.

What Do You Really Need in Terms of M&A Tax Advice?

The US tax code is extremely complicated. Former President Jimmy Carter once referred to it as a “disgrace to the human race,” and back then it was only about 25,000 pages long (versus the 75,000 or so pages today).

In 2014, the United States Government Accountability Office conducted a study whereby they “had tax returns prepared for us at 19 randomly selected locations of several commercial preparers throughout a major metropolitan area.” Of the 19, the majority calculated incorrect tax amount due to the federal government. Unfortunately, many accountants out there are just like these 19, jacks-of-all-trades, masters-of-none… and in the area of tax law, you do not want a jack-of-all-trades.

Over the years I’ve worked on pest control deals as small as a few hundred thousand dollars and as high as in the hundreds of millions. On our larger transactions, I specifically refer the shareholders to tax experts. Almost every company has an outside accounting firm that does a variety of mundane tasks, such as bookkeeping and the filing of tax returns.

When I say tax expert then, I am not talking about your accountant. I am talking about individuals that have advanced degrees in TAXATION and they only deal with complicated tax issues, like the nuances — and tax ramifications — between using the words “customer contracts” versus “customer list” on the Class VI intangible asset line item on IRS Form 8594.

Last year, one of the complex transactions that I advised on required us to not only work with the Company’s accountant, but also go out and get two second opinions from tax experts. One advisor, in particular, was dynamite to work with and I think he did a phenomenal job for the client:

Cory Vargo, tax manager at Macpage, is cut from a different cloth than the jack-of-all-trades, master-of-none accountant who does bookkeeping, tax preparation, consulting, accounts payables management, etc. He’s not a specialist in pest control, he’s a specialist in one of the most complicated areas of accounting and law: taxation.

If I were selling my own pest control business, I would hire Cory to advise me on tax issues.

Finally, although tax issues are clearly an important part of a transaction, they are not nearly as important as many other areas. In the pest control industry, 90%+ of the typical transaction will be taxed at long-term capital gains rates, whether you’ve got a great tax advisor or not. More money is lost by sellers from executing poor sell-side process than is ever lost by not receiving tax advice. You often have more to gain from maximizing gross purchase price than you do from shaving pennies off a tax bill. If you run process correctly, the tax issues will be a rounding error. 

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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