***updated 9/26/2012 at 1:30 p.m.***
READING Pa. and ANAHEIM, Calif. — After months of speculation, Rentokil Initial announced it has acquired the assets of Western Exterminator Company for $114.6 million, which includes a deferred consideration of up to $15 million payable within 18 months, from existing financial facilities. As part of the deal, Rentokil also acquires Target Specialty Products, the Santa Fe Springs, Calif.-based distributor owned by Western (see related story, below).
The acquisition means that Rentokil will become the third largest pest control company in the North American market with annual revenues in excess of $330 million, according to a Rentokil news release. Western Exterminator reported 2011 revenues of $94.8 million, ranking it #11 on PCT’s 2012 Top 100 list, and services customers in California, Nevada and Arizona. The acquisition greatly expands the footprint of Rentokil North America, a $246-million operation (#4 on PCT’s 2012 Top 100 list). With brands J.C. Ehrlich, Presto-X and Watch All, Rentokil is a major player throughout the East Coast and Midwest; the addition of Western Exterminator gives Rentokil a much-needed West Coast presence and platform for expansion in this region.
|The acquisition of Western Exterminator greatly expands the footprint of Rentokil North America, giving Rentokil a much-needed West Coast presence and platform for expansion in this region (image: Rentokil Initial news release).
John Myers, president and CEO of Rentokil North America told PCT that Western Exterminator is an important piece of the puzzle that was missing. “When you think about how strong the pest control markets are in California, Arizona and Nevada and when you think about how big those economies are – that was a huge gap,” he said.
Another of Rentokil’s acquisition criteria is culture fit, and again Western was a great match, Myers said. “[Western President] Mike Katz and I were kind of completing each other’s sentences when we discussed what we believe in with our employees and our customers.”
Myers said Rentokil began discussions with Western in September 2011, but the two parties were well acquainted because of a 20-year business relationship between Katz, and Victor and Bobby Hammel, owners of J.C. Ehrlich, which, in 2006, became Rentokil’s first major U.S. acquisition and first platform company. In 1992, Victor Hammel and Katz created a co-op partnership whereby they shared experiences with operations such as information technology, service excellence and call center training. “It’s because of the work that was done 20 years ago and the mutual respect those two leaders had that when the time was right we were the obvious decision for them,” Myers said.
WHY NOW? Western Exterminator had long been pursued by large national pest control companies seeking to expand their West Coast presence. With a reputation for quality service dating back to its founding 90-plus years ago and the iconic Little Man logo, Western is perhaps the most recognizable pest control brand in the western United States. The company also has a stellar management team including Katz; Tom Anfora, vice president and general manager; Debbie Byrne, vice president of administration; and Mike Lawton, vice president of commercial pest. These and other assets have made the company attractive to potential suitors.
While Western’s management team has provided the company with stable leadership, Western’s future as an independent, family-owned firm had been uncertain. Western was founded in 1921 by Carl Strom, who shortly thereafter made his brother-in-law, Ray Lovejoy, a partner. Strom’s nephew, Ole Anderson, also joined the company and he became chairman of the board in the mid-1980s, after Carl Strom’s wife, Daisy, retired. These three families — Strom, Lovejoy and Anderson — owned Western Exterminator, and various family members served on the company’s board of directors or were shareholders (there are 20-plus Western shareholders).
Katz said that, like a lot of family-run businesses, Western was challenged with passing the company’s ownership down to subsequent generations. “With each generation you get more players involved and many times they are further and further away from the business — both from the history of the business and the day to day operations of the business,” he said. “Of the 10 fourth generation members, we have one in the business right now. I think they felt it was time to make a move to allow the company and the people in it to move forward as well and as positively as possible. Frankly, I thank them for having that kind of judgment and willingness to make a decision that I think was not easy for them.”
Becoming a part of Rentokil, Katz believes, will allow the Western traditions and culture to continue. Katz said he’s observed how J.C. Ehrlich and Presto-X, companies similar to Western, have flourished after being acquired by Rentokil. “I know people at both of those companies and I see people there growing and taking advantage of opportunities and being very happy at what they do. And that speaks more to me than anything else.”
MOVING FORWARD. What’s next for new Western Exterminator? The goal for both Katz and Myers is to make the transition as seamless as possible and have the operation run “business as usual.” Katz, 62, will continue as Western president and the Western management team will remain intact, overseeing close to 1,000 employees at 36 offices in California, Arizona and Nevada. Also, Myers said that prior to the acquisition Rentokil had two service professionals in California, but otherwise there are no overlapping territories.
Katz now reports directly to Myers. “Clearly Mike has been running a very successful business in these areas and he will continue do so for a long time,” Myers said. “I am going to be the guy behind Mike making sure he gets the resources he needs to be successful, but it’s not the John Myers show — it’s the Mike Katz show. Mike has built up a lot of confidence in his team. I can’t run it. I am excited to have Mike run it as he always has.”
Western also goes from being a family-owned business to being a part of Rentokil, a publicly-held business, which has both pros and cons. The pros are that it will now have easier access to capital. The cons include having to report results quarterly and be beholden to shareholders on a quarterly basis. Myers does not anticipate much of an impact here, and again refers to acquired companies J.C. Ehrlich, Presto-X and Watch All. “We’ve been able to maintain the integrity of what each of those businesses those stood for without making them a corporate entity,” he said.
The acquisition is expected to close later this year subject to regulatory approval.
The author is Internet editor and managing editor of PCT and can be contacted at email@example.com.
| A New Day at Target
Included in Rentokil’s acquisition of Western Exteminator is Target Specialty Products, the distributor owned by Western that serves the western and central regions of the U.S. from 13 branch locations. Similar to the how Western fills a Rentokil geographical void, Target fits nicely with Rentokil’s distribution arm, Ehrlich Distribution, Myers said. “We go as far west as Topeka, Kan., and Target goes as far east as Oklahoma, so if you look at a map that is a nice fit,” Myers said. “We will combine the two entities and build one large distribution business. We are excited about what that brings to the marketplace. In distribution, larger is better. We are real excited about how this will help our third party customers as well as our internal customers.
Another benefit of this merger is that Target has a much stronger turf & ornamentals presence than Ehrlich Distribution. “We are real excited about the synergies we are going to get from Target to enter the turf business throughout North America,” he said.
Myers added that Target will continue to operate under the Target brand. — Brad Harbison