[Special Report: Mergers & Acquisitions] History Repeats Itself...or Does It?

The 1980s saw a few big companies doing the vast majority of acquisitions in the pest control industry...but during the past several decades all that has changed!

Today, acquisitions are a part of the growth strategy for companies large and small. The only difference is in the size of the deal they are willing and able to entertain.

In the 1990s, the vast majority of inquiries I received were from sellers…now, on any given day, the calls from buyers often outnumber sellers. And these buyers aren’t just the "usual suspects" that you see running ads in PCT and publishing the list of their latest deals — it is small operators wanting to add a route or two — as well as larger companies that are occasional or first-time buyers and have decided it is time to get in the game.

THE MARKET IS HOT! By definition, the market today is a "Sellers Market" — meaning there are more buyers in the market than sellers. Thus, if you are a buyer, there will probably be a high degree of competition for the deals you are pursuing. And if you are a seller, timing is good to consider your exit. But before you get too carried away with those observations, let me give a word of advice. For buyers: know that you may need to be more aggressive in your offers and pricing, but — just for the sake of doing a deal — DO NOT abandon the financial models and strategies that have been your guide to quality deal making in the past. For sellers: know that it is likely that you can get your maximum value in a market such as this, but remember there is A LOT MORE to the deal than just the price.

During the 30 years that I have been involved in the pest and lawn care industry, I have seen buyers markets, sellers markets, and times when virtually no deals were being done at all, like the two years after 9-11. But, I do believe there is a unique demographic and business psychology that may be ready to play itself out in the next few years.

With regard to demographics, we have hundreds — possibly thousands — of companies nationwide that are owned by "baby boomers" who are nearing retirement. Many have no family or management succession plan in place that would allow them to retire and reap the benefits of what they have built without selling to a third party. Thus, since most closely held business owners sell only when their personal timing or circumstances dictate, this could mean a higher percentage of businesses ready and willing to sell than ever before. We also have statistics gathered by the National Pest Management Association that indicate that more than 87% of our industry is made up of companies doing $250,000 or less in revenue per year. This makes for a highly fragmented, owner-operated type industry, which is perfect for consolidation through mergers and acquisitions.

With regard to the business psychology, a list of the top 100 companies (based on 2005 revenues) was published in PCT’s May issue and the vast majority of these companies are actively pursuing growth by acquiring other (usually smaller) companies. Some do it as a means of increasing density, profitability and market share, while others use acquisitions as a means of expanding into new geography or lines of service. The psychology has become one of "high acceptance and appetite" for growth through acquisitions by a broad number of companies who historically have not been very active (if it all) in this arena. And then there is the psychology of the consumer. From our banks to our insurance carriers to our cell phone providers, we have seen numerous ownership changes in our own lives during the past few years. With all this change, there seems to be a much higher degree of acceptance by the consumer for such transactions. As long as we still have the same people providing the service, and we get what we contracted to receive, than we, the consumer, seem to go along with these changes much more comfortably and easily than just a decade or so ago. This has become the "new norm" for the 21st century.

ANALYSIS. So what does all this mean? For buyers, it means you will need to put on your "A" game to be a competitor for deals. It can no longer be something that you do casually. Like all the successful aspects of your business, acquisitions will need a strategy, a well developed plan, and the necessary people and resources for implementation and execution. Do your homework, seek the advice, education and tools you need to fill in the gaps of your current level of expertise and capability. Get in the game and play to win.

For sellers, plan ahead. Don’t wait until you’re ready to sell to start thinking about it. Know what your business is worth; address any areas that might detract from value; get professional advice on the tax consequences of the sale; evaluate what aspects of the sale you will handle on your own vs. seeking the help of outside advisors or brokers; and don’t take your eye off the continued operation of your business until the deal is done.

And to both buyers and sellers: remember it is the win-win deals that close. If you get too aggressive or greedy — even in a market like this one — you will most probably lose more deals than you win. In terms of the price that ultimately will be paid for a business, there is a range of fairness and reality that sets the boundaries. Sellers will demand fair market value for their businesses, while buyers will only allocate their resources to deals that make economic sense in terms of cash flow and return on investment. The art of the deal is finding that place where both sides feel their objectives and needs are being met. And finally, don’t forget, there is far more to the deal than just the price. There is also payment terms, deal structure, and a whole host of issues that relate to how employees, customers and the company will be treated after the deal is closed. All of these can go far beyond "price" to make or break the deal.

The demographics and the business psychology of the day may be changing, but some things remain the same. When a pest control operator has built a business with years of sweat and blood, they care not only about the money but the integrity and character of the company that will carry on what they have spent a lifetime building. That will always matter, regardless how "hot" the market may be!

The author is president of Tampa, Fla.-based Acquisition Strategies and can be contacted at 813/968-9792 or pjw1x@aol.com.