It’s been said that in the mergers and acquisitions universe, an M&A effort can be likened to setting up an old-fashioned arranged marriage. A business marriage may initially look promising, but when two firms merge, conflicting cultures, personnel problems and failures to communicate adequately can combine to result in disaster.
Ryan Bradbury, president of Viking Pest Control, headquartered in Warren, N.J., with 10 offices servicing New Jersey, Pennsylvania, New York, Delaware and Maryland, says the idea is certainly true of the pest control business.
“Our company is a 35-year-old, growth-driven organization that is constantly looking at expanding,” he said, “but I’ve found over the years that you must do careful research and planning to acquire the right companies with the right people. We’ve grown though purchasing good companies with good procedures, good bottom lines and good people who are potential leaders and share our vision.”
WHAT WORKS? Bradbury has been actively involved in the M&A arena throughout the past decade. During that time he’s either started or closed negotiations with dozens of pest control companies. “I’ve learned a lot about what works and what doesn’t,” he said. “And much of what I’ve learned applies to most small businesses.
“Looking over my years dealing with this aspect of the business, I’ve come to realize that when owners get involved in an acquisition, their original role with their company will change,” he said. “It’s like a new job. They must devote a great deal of time to merging two companies with different cultures and different personnel. And they must then undertake the difficult task of running that new entity.
PCOs looking for sellers should listen more to the prospects they’re contacting — and talk less. It’s really part of due diligence.” — Ryan Bradbury
“Small business owners normally spend some of their time managing their company, but the majority of their time working with existing clients and getting new clients,” Bradbury added. “In larger companies, these functions are separate jobs. That means owners of small companies looking for acquisitions will have to choose one of those hats to wear and focus strongly on that area. If they want to manage their company and can afford to put an M&A team on that task, that would be great, but they’ve got be sure that the team can dedicate themselves 100 percent to that job. And they’ve got to look at the cost factors to be considered before making a final offer to acquire the desired company.”
CAREFUL PERSONNEL PLANNING. Bradbury discussed the need for sensitivity and careful personnel planning while preparing for the merger. “For sellers, there’s usually a level of personal pain in letting go of what they’ve created and built. It’s not their company anymore and if they do stay on board, that’s an adjustment that can be a shock to their system. In my experience this is something that rarely goes smoothly and frankly this is something that our company tries to avoid if possible.” Due diligence and relationship forming must be done if the previous owner is intending to stay, he emphasized.
Bradbury says it’s necessary for the buyer to be able to be brutally honest about how things are going in his or her original company and then deal constructively with it. That means stepping back and looking at the company objectively. Old problems brought into the buyer’s new business only create bigger problems and decrease the maximum return on the deal, he cautioned.
DEALING WITH CHANGE. “The owner of the new entity must accept the fact that the existing comfort zone is lost and many or all of the old company routines will need to be changed. Buyers should realize that they may be pushed to a new limit in a short time; things will come at them from different directions and they will have to manage new responsibilities and new people.”
He said he wishes he could create a formula on how to handle this, but he doesn’t really think there is one. “I’ve seen that organized and thoughtful managers handle this better than those who are not clear on what to do. But if they do things right, they should have faith that they’ll eventually create new routines and new comfort zones.”
Borrowing the expression “don’t sweat the small stuff” from the military, he’d recommend that buyers be flexible in their efforts to make their mergers work. “When I look back on when I started my M&A actions, I laugh and wonder what I was thinking. In part I was just trying to exert control over our new environment, but I can tell you what I did was a waste of time and energy.
Ryan Bradbury
“Creating a new entity after an acquisition is not easy. It’s not easy to predict what will happen and what will be important to the merged company in the future. My experience tells me that 80 percent of what an owner expects to happen won’t happen. So from time to time it’s a good idea take a hard look at all the things worth fighting for, and to remember that decisions can be made to change the things that aren’t working out.”
CLOSING THE DEAL. Bradbury says that there must be a driving force to get an M&A deal to closure. Deals close fast if both sides are realistic and levelheaded, he said. Sellers in particular are usually very concerned about privacy and confidentiality. “They don’t want their employees and customers to know they are shopping their business. Buyers with integrity do not cause information of a pending deal to leak out to the street. If the deal is to conclude, both parties must compromise on the factors that are not the be all and end all. Sellers have decided to do the deal and must focus strongly to get it done. Buyers have to respect the seller’s decision and abide by the agreed-upon deadline to make it happen.”
He also cautioned that pest management company culture is an important consideration in looking for an acquisition. “A pest control company that prides itself in white glove service and high-end residential business who is looking at a lowball company specializing in low-income housing should be aware that it’s probably going to be a bad fit. And if the buyer has all of his technicians park their trucks at the office and punch in and out for hourly pay, and the seller pays by production and allows employees keep track of their own time and take their vehicles home, there’s sure to be a culture clash.”
Bradbury says in his experience, many people think the concept of culture is fluff and doesn’t matter. “But I don’t think that is true. Culture clashes can be a major problem for an M&A deal,” he said.
“Another important thing I’ve learned over the years concerns the quandary of keeping or not keeping newly acquired, non-productive employees coming into our firm. I’ve concluded that ‘dead weight’ must go. Our company, in trying to make a merger work, has changed job descriptions, moved employees around and even created new positions. And that hasn’t always worked. The seller should identify those questionable employees, especially if the buyer is unable to meet, talk to and spend time with every employee of the acquired company. Having determined who they are, they should be terminated so they can make positive contributions elsewhere,” he said.
HIRE FOR ATTITUDE. Bradbury also suggested heeding the old human resources department saying, “Hire for attitude and train for skills.” It’s important, he said, for an acquirer to find a seller with a great, company-wide attitude. “This will make the deal close faster and return more profit to both the seller and the buyer. It’s ideal to have employees who are focused on generating the biggest, positive impact on the future of the merged company in both the short and long terms.”
Bradbury also stressed the importance of good, clear communications. “PCOs looking for sellers should listen more to the prospects they’re contacting — and talk less. It’s really part of due diligence. It’s the best time to learn about the company they are considering to purchase. Good communication skills are something I try to continue to do and improve upon — in all aspects of my life,” he said.
“To enhance an M&A deal, PCOs need to have plans in place on how to avoid culture clashes, how to integrate top positions and how to handle employee conflicts. The more focused and organized a buyer can be in advance, and the better his or her communications skills are, the better the newly merged organization will be later.”
Bradbury said mergers and acquisitions usually start off with a great deal of excitement and vision, but many deals oftentimes blow up. He emphasized that the two parties concerned take the time to carefully explore the perceived opportunity and carefully navigate through the possible “minefields” with their eyes open.
“At Viking we understand that business is a risk but we know more today than we did yesterday about how to gauge that risk,” he said. “We’re more than happy to pay top dollar for a winning acquisition, but we don’t want to buy the wrong company at any price. It just isn’t worth it.”
Common M&A Post-Closing Disputes . . . . . . And how to avoid them.
When it comes to either selling or buying a pest control company, any owner who is involved in doing so will invariably tell you that the transaction is complex. Expanding a company through acquisition or selling a company can involve all kinds of difficult roadblocks and risks. So PCOs should understand the elements of how a purchase or sale agreement is crafted and then consult a qualified CPA and attorney to help guide them through the process.
“Without that expertise, you can trigger litigation landmines and face accounting disputes,” said John Corrigan, attorney with the law firm of Corrigan, Baker & Levine. “If you’re contemplating a deal, make sure you have your CPA and attorney act as your key business advisors.”
Corrigan and Dan Gordon, CPA, owner and president of PCO Bookkeepers, recently discussed common post-closing disputes during a PCT-sponsored M&A Virtual Conference and advised participants how to avoid those situations.
PRECISE KNKOWLEDGE NEEDED. According to the two professionals, your advisors should have precise knowledge about the pest control industry and be well versed in how M&A deals are structured. They should be knowledgeable about factors in the proposed deal that could cause problems for the inexperienced.
In discussing the important details of the deal, they suggested that buyers first create and utilize a questionnaire to learn about the weaknesses and strengths of the selling company. They emphasized that you should get as much pertinent information as you can about its employees, customers, revenues, expenses, etc.
“Then, as you get into due diligence, the key, whether you’re a seller or a buyer, is to zero in on anything that could be quirky or unusual about the other company,” Gordon explained. “In this industry, although there may be 80 percent commonality, different businesses are not all the same. Different owners have different ways of doing business. You can’t be comfortable and assume that everything is boilerplate, especially when drafting a purchase agreement, which memorializes all the specifics of the transaction. If some pertinent information is left out and not properly disclosed because your attorney wasn’t part of the conversation, that could come back to haunt you.”
CLOSING CONTRACT GAPS. If some of that critical information is missed on the first draft, this is what Corrigan calls a contract gap. “If that’s the case,” he said, “make sure your professional will close that gap by carefully reading the draft and not giving it short shrift. Your advisor must be highly focused, like a laser, on the things that are unique and problematical for the seller or the buyer.”
The disclosure schedule, an item that every asset purchase agreement must include, he said, should precisely spell out additional information about the selling business and discuss what’s been determined to be problematic or uncovered during the due diligence process. “It should give the seller an opportunity to describe ‘sensitive’ matters and possibly shift risk on specific things that may be problematic for the buyer,” Corrigan said.
“For the buyer, it should clearly contain needed information and data about the seller,” he added. “But that doesn’t necessarily mean the buyer will ultimately assume responsibility for those ‘problems’ disclosed by seller. If the buyer doesn’t like what’s quirky about the potential acquisition, he or she is going to be skittish and disclaim any assumption of potential liabilities.”
According to Corrigan, careless use of language and information in the disclosure schedule could possibly result in a subpoena from a tax or regulatory agency because of potential liability to third parties. “The buyer doesn’t want to end up with the seller’s liabilities for past acts under what is known as ‘successor liability theory,’” he said. “Creating a seller’s disclosure schedule is a lot of work because it’s an ‘art form’ in itself and is sometimes highly contested after the deal closes and a problem surfaces.”
VALUING A COMPANY. Gordon, in discussing ways to determine the final purchasing price, said that valuing the seller’s company is an important factor. “When you’re buying a service business, you’re valuing revenue streams and making certain assumptions about the revenue stream(s),” he explained. “When you’re talking to your associates about value, you may hear them say that certain pest control companies are selling at a 1 times revenues or a 1.25 times revenues or even a 1.5. That seems to be a common way for everybody to talk about it. But that’s not how they’re really valued.”
According to Gordon, when those “in the know” are valuing revenue streams, they will look closely at a company’s commercial, residential and wood-destroying work and will then create a potential cash flow statement to see what the return on investment (ROI) is.
“Let’s say there’s a million dollar-revenue company that’s throwing off 20 percent net income (bottom line) to the owner, and that company sells for a 1.0 time revenue. It’s actually selling for 5 times net earnings — the price/earnings multiple. If it’s selling for 1.2, that would be equivalent to 6 times net earnings. But taking a look at all the revenue streams is a rather simplistic way of looking at it. In most circumstances, a final price won’t actually be known until after the transaction is closed because of post-closing adjustments tied to the changes (up or down) to the revenue streams purchased.”
That’s where the topic of post-closing issues really becomes important, said Gordon and Corrigan. After closing, there can be adjustments based on things that were misunderstood, or the existence of factors in the valuation that didn’t pan out the way the buyer or the seller thought they would.
INTANGIBLE ASSETS. “Once the tentative purchase price has been agreed upon — let’s say the 6 times net earnings has turned into a 1.2, the seller then thinks he’s receiving sales proceeds of $1.2 million for his company,” Gordon said. “But that’s not necessarily so because most deals are based on the performance of certain intangible assets, such as the customer list and the value of accounts receivable.
“Say there’s $100,000 outstanding and that’s part of what was sold to the buyer, but you’re only able to collect half that total post closing. In order to protect the buyer, usually the holdback of sales proceeds is required; we see that in most deals. The retention holdback is usually 10 percent of the sales price, even if it’s a cash deal, and it will be held until a certain amount of time has passed. There could also be a purchase price clause for things that don’t pan out, such as a smaller than anticipated cash flow,” Gordon said.
According to Gordon and Corrigan, one of the biggest post-closing issues or purchase price adjustments comes from retention of customers or guarantee of revenues. “Really, it’s all in the definition of revenues,” said Gordon. “For instance, when we value a business, we see the company has a certain amount of quarterly customers, a certain amount of monthly customers, a certain amount of weekly customers, a certain amount of annual customers, revenues from customers not under contract, etc. We add those different revenue streams to get the expected total revenues of the business.”
SKIPS AND CANCELS. The pest control business has a recurring revenue model, but the problem with that model is there are skips and cancels that happen with the customer base. However, just because a customer skips doesn’t necessarily mean he’s cancelled a scheduled visit. If you have a $100 per quarter customer, the annual revenue he generates is $400. And if that customer skips, it’s now $300 unless the service was just rescheduled for a later week in the quarter. What do you do with that fact? How does that affect the definition of revenue being sold to the buyer? If a customer skips a quarter and returns in the next quarter, sometimes that could be counted as a cancel when in actuality they’ve returned. If the purchase price was based on $400 of revenue for that customer and it comes in at just $300 then the seller will be facing a 25 percent reduction of the sales price paid for such customer. The buyer gets to benefit from that factor in the valuation if the purchase agreement defines how revenues are calculated post-closing.”
CLEARLY STATED DEFINITIONS. Gordon cited another example of a controversial situation that can affect the deal: “If the seller’s customer has a contract that promises free retreats, but skips a quarter and takes service the following quarter and then wants a free retreat — is that considered an extra service for a fee or is that a free retreat? It’s quite important to create clearly stated definitions. The amount of the selling company’s original purchase price is usually adjusted downward as a result of falling below contractually defined customer annual revenues.”
“So, how do you define skips and cancels?” asks Corrigan. “All of that and other important factors need to be hammered out by the seller and the buyer. That language in the contract must be very, very clearly defined.”
If some pertinent information is left out and not properly disclosed because your attorney wasn’t part of the conversation, that could come back to haunt you.” — Dan Gordon
When Rand Hollon talks about pest control industry mergers and acquisitions, PCOs stop and listen — carefully. That’s because for almost 30 years, his company, Preferred Business Brokers, has enjoyed an impressive reputation throughout the pest control industry for M&A expertise. Hollon advises pest controllers on M&A details, acquisition process leadership, exit strategies and company sales processes. He imparted some of that expertise to participants of PCT’s M&A Virtual Conference in 2015.
Hollon said great acquirers, regardless of company size, can be found throughout the industry. Size doesn’t really matter.
SMALLER DEALS CAN BE DONE. “Let’s dispense with the idea that only big companies can make the best deals. That’s not true,” Hollon said. “There are about 1,000 pest control companies around the country with annual revenues over $1 million. There are about 20,000 companies with annual revenues less than $1 million. So it follows that there are more ‘local’ or smaller deals to be done. And they get done.”
So what can a small- to mid-sized company do to be a more effective player in their market when it comes to acquisitions? What can you do to secure your place in your local market? What do successful acquirers share regardless of company size?
“After almost 30 years we’ve dealt with a myriad of different buyer organizations of every size,” he said. “And, with all the differences, there are four main ideals that successful acquirers have in common: vision, tools, talent and targets.”
VISION. When it comes to successful acquirers, Hollon says the “vision thing” isn’t just garden-variety leadership talk, but a real commitment to growth. “It’s in the successful acquirers’ DNA. They want to be part of, and create something, bigger than themselves. Without a vision for growth it’s difficult to be committed to growing your business. And without true commitment there’s hesitancy to both initiate and create the growth needed to secure your place in the market, regardless of size,” he said.
“It’s not for everyone and that’s OK. Some businesses are ‘lifestyle’ businesses where the primary business aim, intentionally or unintentionally, is to provide for a particular level of income that is a foundation for a particular lifestyle.” He went on to say that, in conventional terms, “lifestyle” businesses have a limited need for the transformative, needle-moving growth acquisitions bring to the table.
Successful acquirers have the leadership and an aligned, company-wide vision for growth. “These folks know where they want to be and understand that acquiring competing businesses is one of the things they’re gonna do to get there,” Hollon said.
TOOLS. And to get there they’ll need tools. In the successful acquirers’ tool shed, cash and access to capital are necessities.
“Successful acquirers know acquisition opportunities can appear when you least expect them. It’s important to be prepared to take advantage of those opportunities when they arise. If you don’t, someone else will,” he cautioned.
Hollon used the term “war chest” as a metaphor for the reserve of funds and/or access to capital set aside to take advantage of the unexpected acquisition opportunity.
Seeing small- to mid-sized companies really secure their position within their local markets through acquisitions is incredibly satisfying.” — Rand Hollon
He pointed out some key differences between large and smaller acquirers. “By virtue of size, assets, financial documentation and business history, larger businesses have less perceived risk and can often secure a larger variety of financing options at a lower cost.”
In creating a “war chest,” Hollon said small- to mid-sized acquirers need to be aware that the financial crisis experienced in the United States created big changes when it comes to a bank’s lending criteria for smaller businesses, not the least of which is eligible collateral.
“For many small- to mid-sized businesses, 100 percent of the profits find their way only to the back pockets of the business owner. To fund a war chest for acquisitions you’ll have to reinvest at least some of the company’s profits back into the business.
“Additionally, the small- to mid-sized acquirer must do homework and understand all relevant acquisition funding mechanisms. These mechanisms can range from seller-financing, borrowing from equity positions, retirement savings or even loans from friends, relatives or associates. There are pros and cons to each and you’ll need help in making the right decisions regarding these moving parts that all work to bring about the transformative growth acquisition brings to a business.”
TEAM. And that’s where the right team comes in, he said. “Successful acquirers know that completing a transaction requires not just a team, but a skilled, experienced team of advisors who have pest control industry deal experience.
“Successfully creating an acquisition involves a lot of moving parts, many of them specific to the individual transaction…let alone the personalities, needs, wants and motivations of the buyer and seller.”
Hollon explained that the local acquirer is busy running a business. “It’s tough to buy a business and operate a business at the same time...you’ve got enough cake on your plate.
“That’s what makes it necessary for the local acquirer to create a team, specific to his business, to be there as specialists at the impact areas of the acquisition.”
These impact areas include:
Financial. Although accounting is largely black and white, the world of financial management when it comes to local pest control businesses isn’t. Ferreting out actual financial data from the small, closely held pest control business can sometimes be a challenge at best. It’s certainly a territory where accounting can move from a science to somewhat of an art form where having a real-world advisor can be a big help, Hollon said.
Legal. Legal documents need to be correct. Lawyers aren’t dealmakers; they’re the ones who make sure buyers and sellers don’t agree to something that could be inadvertently breached, or are illegal or are maybe even unenforceable in a court of law. Even deals that seem simple and “vanilla” at the onset can take a complex turn midstream — an attorney worth his salt can craft documents properly that recognize and provide for reasonable protections and deal execution.
Broker/Advisor. It’s necessary for a team member to have a universal understanding of the deal-making process. “The most important characteristic of any advisor is his specialty deal experience,” Hollon says. “Experience brings with it a level of confidence and the ability to recognize the good ideas and bad ones from each side of the fence. Local business owners take their business personally. And if you’re looking to buy a local business, you can bet the seller takes his business personally too. That fact alone can create a sometimes frustrating and contentious atmosphere where someone with experience can keep things professional, on-track and reasonable.”
Hollon explained: “Even if you’re not prepared to buy (or sell for that matter) this minute, it’s wise to reach out now to cultivate relationships and make discovery as to who will work best on your team. I’ve built a reputation on advising my clients correctly — so make no mistake about it, a good team helps you avoid bad risks.”
Targets. So how does the local, small- to mid-sized acquirer create actionable targets within their local market?
Hollon said the challenge of competing against large, serial acquirers for acquisition opportunities can seem daunting. “In today’s market, there’s a lot of noise and it’s tough to break through all of the ‘We’re different, we’ve got money, we want to buy your business’ messages bombarding the marketplace,” he said. However, the local acquirer has three competitive advantages when it comes to creating an acquisition target list:
He knows his neighborhood. He probably already knows his targets because he’s been competing against them in his own local market. His “local knowledge” gives him a slightly “better-than-market” idea as to whether or not a target would be a good acquisition fit.
The neighborhood knows the local acquirer. The local acquirer is probably less than one or two degrees of separation away from both the local target’s employees and customers. This gives the local acquirer a value edge when it comes to transitioning the acquired business. Hence, he may realize more acquisition value faster.
The local business would, for the most part, rather sell to another local business. All other deal items being equal, the small- to mid-sized business owner would rather sell to a known quantity — to someone like him or herself.
Hollon went on to say that, “Seeing small- to mid-sized companies really secure their position within their local markets through acquisitions is incredibly satisfying. Combined with an effective team, the right tools, and a clear, aligned company vision, transformative needle-moving growth can become a reality in no time. And it does!”
Strategic insight, combined with careful planning, is immensely important for PCOs endeavoring to buy a new company or sell their own. The majority of missteps that take place in a merger or acquisition transaction are due to improper planning.
Those are among the ideas mergers and acquisitions advisor Paul Giannamore emphasizes when he consults with PCOs who are considering entering the buying or selling market. Based in Philadelphia, he is managing director of the Pest Control Group of the Potomac Company, a private investment banking firm.
In a recent PCT-sponsored M&A Virtual Conference, Giannamore illustrated his points by quoting from “The Art of War,” the classic military text by Sun Tzu, an ancient Chinese general: “When your strategic planning is deep and far reaching, you gain much, so you win before you fight. When your strategic thinking is shallow and nearsighted, you can gain little. So you lose before doing battle. Much strategy prevails over little strategy, and those without strategy cannot be but defeated. Therefore the victorious warriors win first and then go to war, while the defeated warriors go to war first and then seek to win.”
According to Giannamore, Sun Tzu’s thoughts are appropriate when working on an M&A deal. “Overall, when thinking about a possible deal,” he said, “buyers and sellers tend to get excited about the small details of deal making, such as stock vs. asset, holdbacks and tax ramifications. But none of these mean anything at all if you don’t maximize the sale price of the business and to do that you’ve got to use proper sell-side strategy.”
To emphasize his point, he posed this scenario:
“The typical seller will often negotiate directly with only one buyer and that’s a horrible move. When you negotiate directly with only one buyer you’re involved in ‘cross-table negotiations’ only.”
“But the most sophisticated sellers in the pest control industry, or any other industry, for that matter, will create an ‘auction’ process by inviting several potential acquirers to sit on the same side of the table and negotiate among themselves. Let the acquirers duke it out for a bit before you get involved, then you’re able to use both ‘cross-table’ as well as ‘same-side-of-table’ negotiations to exert pressure on all acquirers simultaneously.
“In this case, if the selling company can influence leverage from the very beginning of the process, it will be in a better position to strike a favorable deal. The purchase price can be influenced by how well the seller owns the process, and setting up a competitive bid process from the get-go will play right into the seller’s hands…and ultimately to his pockets.”
Giannamore said competition, necessity, desire and timing are important components of gaining leverage at the bargaining table.
COMPETITION. “At the end of the day, competition creates leverage for the seller. When he or she initiates the process by sending a confidential information memo, or offering, to several potential acquirers, they’ll know they’re in a bidding process. Competition will put pressure on them. No matter how sophisticated they may be, they can make mistakes and dramatically overpay for the business. But the seller shouldn’t count on them making mistakes and instead use the formal, competitive process to force the buyers into an auction situation.”
He said a seller also should endeavor to have all the competing bids on the table at the same time. “If he’s gone to three or four potential acquirers and one has responded with a positive and enticing letter of intent but the others have yet to do so, the seller needs to know as soon as possible about what is going on with the others,” he explained. “As offers often have deadlines, the letter of intent might “explode” or terminate if not accepted within a matter of days. If you don’t cause all acquirers to submit bids at the same time you might find yourself in a very stressful situation.
It’s very difficult to have a bird in hand and try to determine what the bird in the bush may or may not look like, but it’s well worth the effort to quickly find out.”
NECESSITY. Necessity, another factor in creating leverage for or against a seller, often includes life events that make it necessary for an owner to sell his or her company. These can include an owner becoming ill or passing away, a costly divorce being experienced by an owner or a company that’s going broke because the owner turned it over to incompetent children.
“It’s a good idea for an acquirer to watch the market carefully and keep tabs on those necessity factors,” he said. “A buyer armed with that knowledge shouldn’t be afraid to make a low-ball offer. And a seller needs to do everything in his power to shield the fact that he’s desperate, otherwise, every buyer out there will use it against him.”
The typical seller will often negotiate directly with only one buyer and that’s a horrible move.” — Paul Giannamore
DESIRE. Desire is yet another factor in determining leverage and is similar to necessity, said Giannamore. “Every transaction is motivated by desire. When the seller wants to sell more than the acquirer wants to buy, or vice versa, that can prove to increase leverage for one side over the other, so it’s important for each party to somehow play that down.”
TIMING. Giannamore stated that timing is one tool that sellers typically don’t employ in a formal selling process, but absolutely should. “They’ve got no timeline. Instead, they’ll start negotiating and then start lying about non-existent offers, especially the more desperate they become.
“What the sellers should do is take control of the timeline. To be the process setters. To make sure that those potential acquirers on the other side of the table are on their timeline. To make sure that the other side’s timeline doesn’t impact theirs.”
In stressing the importance of planning, Giannamore said that sellers need at least three months of careful thought and actions prior to going on the market. “If you’re a seller you just can’t wake up one morning thinking about it and go on the market the following morning. You need to think through the process and take some significant actions,” he said.
“Have you drafted enforceable non-compete covenants? Are your P&L statements in good shape? Do you have confidentiality agreements with your employees in place? Do you understand the cash flow generated by your company? Are there any big companies coming into your territory? Have you vetted potential acquirers? All this should be put in play before you go out into the market.”
It’s important too, he said, for you as a seller to do some significant self-analysis of your company’s status before going to the negotiating table. “What are the advantages you’ve built into your operation? What are the disadvantages? You need to learn how to neutralize those disadvantages and emphasize the advantages by leveraging the controlled auction process,” Giannamore said.
You, as a seller, always have a lot more leverage than a buyer — if you’re doing the right thing, he explained. “If you effectively plan and understand the fair market value of your business, and if you understand the potential investment value of your company and then take it to market, your leverage will increase. As it will when you are negotiating simultaneously with all the acquirers you’ve contacted — and they know they’re competing with the others and know they could lose the deal.”
Giannamore cautioned, however, to make sure that you’ve fully negotiated price and all other material terms of the transaction prior to signing the letter of intent. Upon signing, your leverage as seller dramatically decreases as you’ll be required to take the business off the market and drive toward a close with one acquirer.
“Obviously, the importance of careful thought and planning can not be overstated,” he said.
No Margin For Error
Features - PCT Book Excerpt
Pest control in “clean rooms” represent the ultimate challenge for pest management professionals.
Editor’s Note: Copesan Services and PCT magazine recently joined forces to publish The PCT Guide to Commercial Pest Management. In the latest excerpt from this popular book, two of the industry’s leading technical directors examine how to perform pest management in clean rooms.
Today’s advanced industrial and medical technology has created a new and challenging environment for pest management — the “clean room.” A clean-room environment can be a room, compartmentalized area, series of rooms, or an entire building.
Clean rooms are characterized by a requirement that the air in them is kept free of contaminants and particulate matter down to an extremely fine level of purity. Dirt, polluted air, microbes, volatile organic compounds (VOCs), shed hair and skin from humans, respiratory droplets, fibers from clothing, and any other foreign particulate must be maintained at an absolute minimum.
Clean rooms may be found in university and institutional research laboratories, medical-device development and manufacturing facilities, aerospace plants, biotechnology firms, and semiconductor-manufacturing locations.
Those wishing to offer pest management services to firms working under clean-room conditions must adapt their practices accordingly and accomplish the job of preventing and controlling pests without doing anything that will compromise the highly restrictive air-quality standards of their clients’ facilities.
PESTS OF CLEAN ROOMS. Clean rooms are protected from the rest of the facility by multiple contrivances, including airlocks, “air showers” that remove particulate contaminants from persons entering them, positive-pressure air-handling systems, elaborate filtration systems that “scrub” incoming air, as well as stringent requirements pertaining to clothing that must be worn, and personal effects allowed to be transported into the room.
You would not expect a clean room to be infested by German cockroaches, nor would you likely find fruit flies breeding in such a place. Rather, pests of clean rooms are those insects that are lucky, or unlucky, enough to stumble upon them and accidentally or purposely find their way in. Pests typically found in clean room situations include:
Ants (e.g., pavement ants or similar species dwelling beneath the building’s concrete slab and entering by way of expansion cracks).
Night-flying insects, such as midges, mayflies, and caddisflies.
Fungus feeders and moisture-related pests, such as springtails, foreign-grain beetles, plaster (Lathridiidae) beetles, and psocids.
Flies, including cluster flies, as well as smaller species such as fungus gnats.
Overwintering pests, such as boxelder bugs and Asian ladybird beetles.
Spiders will also be encountered wherever there is food (insect prey), so they also may pose a threat to air quality in a clean room. Sowbugs, millipedes, clover mites, and other landscape pests may find their way into a clean room if they are abundant around the building and any opportunity exists for them to gain access.
The challenge facing PMPs is that invading insects are themselves a threat to the air quality of a clean room, but pest control materials, if left to volatilize or float in the air, can be as bad or even worse. Particles as small as 0.5 microns (0.0005 millimeters) can sabotage the work being done in some clean rooms; one can only imagine the damage an errant droplet of insecticide spray could do.
Various pests can be attracted to a clean room from the outside by lights or air currents leaking out of the supposedly “sealed” spaces. They may be living in suitable conditions directly beneath the sensitive area, or immediately outside the building and find their way inside by random wandering. They may be small enough to have sneaked past the filters that scrub incoming air, or they may be breeding in a damp void area caused by a water leak, bad drainage, improper landscaping, or some other deficiency. Once inside, it isn’t important whether they die of starvation or lack of water, or whether they chose the site for overwintering and live for a time; they cannot be tolerated.
PEST PREVENTION. PMPs pride themselves on their understanding and practice of Integrated Pest Management; pest management in the clean-room environment must be IPM 10 times over. The pest management program you submit to a client with clean-room requirements will consist largely of elements that have nothing to do with the application of pesticides, and you will need a great deal of cooperation from your client. Consider yourself a consultant more than a pesticide applicator in this type of account. Advise your client on the types of conditions that must exist in order for pest-free conditions to prevail in the clean room.
The central principle of clean-room Integrated Pest Management is to start from the facility’s outer surroundings; identify pest-conducive conditions and pest populations that are present; and then, working from outside in — from least-sensitive to most-sensitive — block and thwart a pest’s progress into the clean room.
Most facilities containing clean rooms are in reasonably pristine, well-landscaped areas, so they don’t receive pest pressure from filthy conditions.
Facility Surroundings. Most facilities using clean rooms are in reasonably clean, well-landscaped areas, so they don’t receive pest pressure from filthy conditions. Nevertheless, pest-breeding opportunities are bountiful even in the tidiest industrial park. Decorative, scenic ponds (often necessary as a reservoir to hold fire-fighting water) invite mosquitoes and other aquatic insects. Landscaping mulch and thatch from lawn mowing provide ideal conditions for the breeding of moisture pests, such as springtails and plaster beetles. An upwind lake or river can provide thousands of night fliers, a few of which may make their way into a sensitive zone. Even the most pest-proof of all air-filtration systems will let an occasional night flier in if tens of thousands of them are crashing into it all night long. Lights near, on, and in the building serve as beacons to insects that are hard-wired to fly toward light. Standing water in ditches, storm sewers, and puddles on the roof can contribute to the presence of night fliers and moisture-related insects.
Building Exterior. “Pest-proof” is a relative term, and no building can be completely pest-proof. After all, buildings have to breathe. Weep holes in brick facades and window systems are necessary components of a building’s construction. Doors are opened and closed all day — and possibly all night. People and goods come and go, and air currents may suck insects into the building. Attractive landscaping, which is important to good corporate citizenship, contributes other opportunities for pest insects to thrive nearby.
Building Interior. Almost all structures are built on soil and the creatures that live in that earthen environment are not aware that they are unwelcome in the space above their natural habitat; thus, they are bound to spill over into interior spaces from time to time. An ant here and a sowbug there can’t hurt anything in an ordinary office building, but in a clean-room environment it is a different matter. Start from the outside, some distance from the building that houses a clean-room environment, and work inward to identify weak spots that would allow pest access.
Landscaping. Encourage your client to use minimal ornamental landscaping, with a well-drained, 3-foot-wide rock border around the perimeter. Be sure the slope of the terrain leading away from the building is downward, so moisture is not trapped close to the building. Check rain gutters, roof scuppers, and downspouts for clogs or stoppages.
Discourage the use of flowering plants and shrubs in landscaping, as well as any that produce berries or other types of fruit, since these naturally attract insects. Advise your clients against planting low-growing cover such as ivy, juniper, or any shrub that will trap wind-blown debris, since these create a high-moisture, fungus-laden environment directly against the building that will encourage the development of springtails, psocids, plaster beetles, and similar insects. If present, trees should be sparsely planted, and no part of any tree or shrub should contact the building’s walls or roof. Shrubs should be widely spaced and of the “goblet”-shaped variety so that it is easy to rake debris from beneath.
Encourage your client’s grounds crew to bag grass clippings as they mow; this will reduce the amount of thatch that traps moisture and will prevent accumulations of grass clippings from filtering down into the rock-foundation border.
Lighting. Lighting should be kept to a minimum, and any bright lights that must be mounted on the building should be of the sodium-vapor variety, which is much less attractive to night-flying insects than traditional mercury-vapor or incandescent lighting. If mercury-vapor lights have any place at all, it’s in the parking lot, at least 100 feet from the building. This arrangement can attract insects away from the building, instead of toward it. If interior lights are visible at night from the inside, this will attract insects — some of which will find their way inside. Ask your client to consider shading windows in lighted rooms near a clean-room area — or better yet, turn off the lights at night, if possible.
Roof. Check the roof periodically to ensure there is no standing water, clogged drains, or other water or moisture problems. While on the roof, make sure air filters are tightly in place with their edges snugly gasketed against their frames. This will thwart insects that may try to crawl past the filter elements by going around the sides.
Windows. Windows must fit tightly and, if screens are used, they must be rated at least 24-mesh. Even this fine a screen will admit some insects. If the windows have a weep gap, this can be packed with a loose bead of copper mesh to reduce insects’ ability to get into the building.
Trash. Compactors and trash Dumpsters must be isolated from any part of the building that is close to a clean-room area, and must be kept as far from entry doors as possible. Outdoor trash containers around a clean-room facility must be serviced (emptied or changed) at least weekly, and be kept almost clean enough to eat out of. Your client cannot afford to have any flies breeding on site.
Building Construction. Masonry foundations and exterior walls must be free of gaps; masonry blocks used in the construction of foundations and walls should be filled or capped to prevent pests from moving upward within them. Gaps in masonry or between pre-fabricated, tip-up walls must be sealed using an appropriate, flexible sealant. The same applies to gaps where windows and doors are mounted. Any such building used needs to be inspected on a regular basis for gaps, with the gaps then sealed with an appropriate sealant that will move with the building and maintain its integrity.
Interior drywall must extend from slab to slab, be sealed to the floor and extend above the false ceiling to the cement sub-floor above. Penetrations for electrical or other utilities must be sealed, both below and above false ceilings. Especially in clean-room areas, but also throughout the building’s ground floor, expansion joints must be sealed if possible with a flexible sealant. In carpeted rooms, it will be necessary to lift the edge of the carpeting to expose the expansion joint for sealing.
In the clean room itself, whether it consists of one compartment, many rooms, or the whole building, a level of pest imperviousness must be achieved that goes beyond normal construction practices. For example, electrical outlets and switches provide a direct connection to anything behind the wall and beneath the floor. To completely seal off rooms from the voids behind and beneath them, the gap between switch and outlet boxes and the hole that was made in the wall to accommodate them must be sealed with drywall compound, tape, or another sealant. Silicone caulk can then be applied around small holes where wires enter or to seal unused knockouts and drill holes in the switch and outlet boxes. Ceiling exhaust and ventilation fixtures and lighting may have to be dealt with in a similar way, to ensure that there is no opportunity for an insect or other arthropod to find its way into the clean space.
Kitchens, cafeterias, employee dining rooms, locker rooms, and restrooms support many of the pests in a commercial account, given the presence of food, water, and proximity to plumbing and sewage systems. Thus, sanitation and structural maintenance must be perfect in these areas. Drains must be regularly cleaned and free-flowing; tiles must be tightly grouted throughout these areas. All kitchen equipment, including dishwashing machines, sinks, stoves, fryers, etc., must be maintained in a condition that makes any kind of insect breeding nearly impossible.
Trash should be removed from the building at least daily, and Dumpsters should be emptied and washed (or replaced with a clean unit) at least once a week. Trash from offices must be taken to the dumpster at least daily, in tightly tied, durable, plastic bags. Trash cans should be washed and rinsed once each week.
Wastepaper baskets should be used only for dry paper; all other trash goes into designated trash containers. Even one banana peel, orange rind, or apple core can turn a wastepaper basket into a fly-breeding area.
Recycling Areas. If can and bottle recycling is offered, the receptacles must be emptied and thoroughly washed and rinsed at least once a week. Encourage employees to rinse and thoroughly drain cans and bottles prior to placing them in the recycling receptacle. All employee belongings — coats, bags, backpacks, purses, and lunch boxes or bags — must be confined to the locker and dining areas; no food or beverages should be taken outside of these areas.
PEST CONTROL. Insect light traps (ILTs) should be installed indoors in such a way that they are not visible from the outside and they progressively intercept flying insects that manage to get inside in less-sensitive areas before they get close to a clean room. By themselves, ILTs are of limited value, but in a clean-room facility, they are an indispensable part of an integrated strategy.
Recommended places to install ILTs include: in entry vestibules, in loading and shipping docks, in boiler and utility rooms, in the employee cafeteria and locker room, and in hallways leading to clean-room areas. The specific flying-insect pressure in the facility will dictate whether the traps are mounted high or low. Traps intended to catch night fliers can be mounted high (e.g., hung from ceilings or over dock doors), and traps intended to catch house flies and other filth-breeding flies should be mounted close to the floor.
Inspect and thoroughly clean all insect light traps as part of every service visit, and make a record of the kinds of insects present: filth flies, night fliers, small flies such as fruit flies, etc. This may help you pinpoint improvements that the facility staff needs to make in sanitation, maintenance or personnel practices.
Exterior Pesticide Use. Any consideration of pesticide use begins on the outside of the structure and proceeds inward. If you have identified pest pressure from the building’s landscaping and have exhausted all available non-chemical options, you may decide that the facility could benefit from an exterior pesticide application. Exterior treatments can reduce pest pressure on a building, decreasing the number of pests that get inside.
Consider granular-insecticide lawn treatments — watered in immediately after application via rainfall or irrigation—to reduce populations of root weevils, earwigs, ground beetles, and other turf-related pests. Spray treatments timed to the activity periods of clover mites will be useful in preventing these tiny invaders from finding their way into buildings and into the clean rooms housed within.
For insects that approach the building seeking overwintering shelter (e.g., cluster flies, Asian ladybird beetles, boxelder bugs, and paper wasps), consider exterior treatments to the building that are timed to the arrival of these pests in later summer and early fall. Any exterior treatment must be done under the lowest pressure possible, on a day when there is little or no wind, and the spray must be kept away from any potential entry into the building, including air-intake vents, exhaust vents, open windows, or doorways. Make sure that no insecticide — whether granular or liquid — comes in contact with sidewalks, patios, or any place where employee foot traffic might pick up the materials and carry them into the building.
Ants nesting near the building can be eliminated, or their populations reduced, with a direct treatment to their nests with an appropriately labeled spray or bait. Bait stations can be established around the perimeter of the building and maintained as part of the regular service routine.
Insects and mites that are associated with rodents and birds can be kept away from the building by having an effective rodent control program around the perimeter of the building, and ensuring that the building is constructed or modified in such a way that it does not present any opportunities for birds to feed on premises, or to roost or loaf on rooftops, roof parapets, or window ledges. PMPs must consider rodents and birds in the planning phase of designing a pest management program for clean-room facilities.
Interior Pesticide Use. There are some interior areas outside the clean room where pesticides can be of use. Ant control can be accomplished outside of the clean room by placing baits along observed feeding trails. Away from clean rooms, it would be acceptable to place residual insecticides (dust or liquid) directly into cracks or expansion joints leading to probable nest locations. Cockroach baits can be used in kitchen, dining, and locker room areas, as in any other account. Make any application of a liquid-residual insecticide with the lowest pressure possible, and avoid the use of space-treatment materials, including pressurized aerosols, anywhere in a building housing a clean room. If a dust is used, make sure that none is in an exposed area. Dusts may only be used deep in cracks or in voids that cannot lead to any part of a clean room.
Entry into the clean room can involve significant time and preparation. Some clean room entry procedures only involve donning a Tyvek coverall, booties, gloves, and hairnets; others require entry through an airlock and wearing a sterile “moon suit,” plus scrubbing in an air shower prior to entering the room. This involves significant expense (disposable suit, booties, respirator cartridge) and time for each entry cycle. In some cases, the technician might not be authorized to enter the clean room at all.
In facilities that contain clean rooms, crawling insects can be intercepted in the same way as flying insects — by trapping them as they enter less-sensitive areas from outdoors, long before they make their way anywhere near the clean areas. Sticky traps, placed inside durable, low-profile monitoring stations are an excellent way to trap wandering ground beetles, sowbugs, millipedes, earwigs, and other occasional invaders that find their way inside.
Place the traps in secluded areas, near doorways, in shipping and receiving docks — any place it is possible for an insect to crawl into the building; check them on every service visit. Since decaying insect parts contribute to the overall air quality of a building, change the sticky traps and remove the trapped insects from the building each time a trap shows any catch activity.
PESTS IN CLEAN ROOMS. In spite of all the preventive and remedial measures described, insect activity may at some times be noted within the confines of the clean room. If you are faced with this situation, some helpful tips include:
Ask your facility contact to supply you with a specimen of the pest. Identify the pest, and list what you know about that pest’s biology, behavior, food choices, and breeding conditions. This should tell you where it is likely to have come from, and may give a hint as to how it entered the building and eventually made it into the clean room. For example, springtails found in a clean room can indicate there is a damp condition immediately outside the building, beneath a floor slab, or in a wall void that needs to be corrected. Investigate to find the “reservoir” population (the insects breeding directly in their preferred habitat), and try to eliminate that.
Determine the likely source of the pest. Is it an aquatic night-flying insect that came from a nearby pond or stream? Is it likely to have been breeding in the lawn or landscaping near the building? Was it attracted to light? Could it have hitchhiked into the clean room on supplies? Springtails in a clean room have been known to originate from a larger population of springtails that were living under the polyethylene sheet that had been laid beneath the rock border around the outside of the building. Once the rock border was removed, the sheeting was picked up, and the soil beneath was treated with insecticide and allowed to dry out. The polyethylene sheeting was replaced with a permeable landscaping fabric, which allowed the soil to dry out properly and prevented any future springtail problems in the clean room. The identity of the pest found in a clean room will almost always point to a similar biological or behavioral feature of the pest that will indicate its likely source — and suggest remedial measures that can be taken, without pesticides needing to be applied in the clean room.
Take appropriate supplemental non-chemical steps to eliminate the source or the pest’s route of access to the building and the clean room. It may be necessary to modify the exterior landscaping; make improvements in indoor sanitation; find and seal cracks and expansion joints; check and, where necessary, improve the sealing around the clean room itself; investigate and possibly repair the facility’s air-handling and air-filtration system; add sticky traps to intercept insects before they get close to the clean room; or undertake a variety of other non-chemical measures.
Apply pest control devices or materials, whether sticky traps, insect light traps, or pesticides, only as a last resort and only if this can be done in such a way that there is no chance this activity could add to the particulate load in the clean room’s environment. Some pesticide applications that might be permissible inside a clean room include:
Use of cockroach gel baits, placed on a retrievable station (bait pucks or small pieces of stiff, non-fibrous paper or Tyvek).
Use of similarly formatted ant-gel baits or bait stations.
In very rare instances, application of a liquid or dust insecticide into cracks beneath floor slabs that are sealed immediately afterward, to control sub-slab populations of termites, certain ants, springtails, etc.
If it is necessary to even consider application of a residual insecticide to an exposed surface, consider applying with a brush (not a sprayer).
In addition to pesticides, it may be permissible to install sticky traps in select locations of a clean room (e.g., in a false ceiling). If this is done, make sure the traps are checked regularly and removed as soon as they have accomplished their purpose.
Clean rooms are one situation where it is wise to rely on the client to deliver remedial pest management service. Since it is difficult to get into clean rooms, consider supplying the client with whatever they need, and instructing them on exactly what to do with it in the clean room. For example, if you want to place a sticky zone monitor into a ceiling void, inform a facility’s technicians as to where the device should be placed and let him or her place it. Prepare ant- or cockroach-bait placements, and tell your contact where they should be placed or from what location they are to be removed. This can save time and help to preserve the clean room’s air purity. In this instance, you are their valued consultant, and they implement your instructions.
SUMMARY. Considering the highly restrictive nature of clean rooms pertaining to personnel entry, and considering the absolute zero tolerance both for pests and pest control materials, PMPs should focus their efforts on preventing pests from getting into clean rooms in the first place.
PMPs must act as consultants for their clients, advising them on sanitation, design, construction, and maintenance improvements that can be made in the building’s surroundings, on the building itself, and inside the building to make the whole area as unfriendly to pests and as impervious to pest invasion as possible.
When it is necessary to apply a pest control device or, in rare cases, a pesticide, inside the clean-room environment, it must be done using materials and methods that reliably preclude the possibility that any contaminants will be added to the particulate load of the air in the clean room.
