UK pest management journalist Frances McKim reviews the big M&A events of 2021 and offers analysis on what Rentokil’s latest acquisition means for the US pest market.
Looking at the performance of the US pest control market over the last year, from a mergers and acquisitions (M&A) point of view, was relatively straightforward up until December 2021 when Rentokil Initial announced its intention to buy Terminix Global Holdings. This single transaction will dramatically reshape the US pest control industry.
In 2020, as a result of the pandemic, the mergers and acquisitions market ground to a halt literally overnight. But by the end of 2020 there was a rush of activity in an attempt to catch up, and over a half a billion US dollars’ worth of deals were finalised in the last 100 days of the year.
This high level of activity was predicted to continue into 2021, with a forecasted global spend of over US$2 billion by the big four (Rentokil, Rollins, Terminix and Anticimex). Whilst the M&A market was active, it failed to reach these predicted heights. The Potomac Company, a US M&A advisory group, reports that global M&A spend in 2021 reached US$1.297 billion (Figure 1) – double the amount spent in 2020 but not quite as much as was spent in the record-breaking year of 2019.
In 2021, once again Rentokil was the most active, accounting for over a third of the global total spend, acquiring 48 pest control companies in 24 different countries with an M&A spend of $588 million. But their most significant activity became apparent in December 2021, when Rentokil announced the intended purchase of Terminix Global Holdings for US$1.3 billion plus shares.
Anticimex nearly doubled their global M&A spend from $247 million in 2020 to $450 million in 2021. The majority of this, around $400 million, was spent acquiring regional US companies.
Soon to be knocked off their number one spot in the US (following the Rentokil/Terminix acquisition), Rollins made 39 acquisitions during 2021 for a total of $146 million, a very similar figure to their 2020 spend. A small but growing part of the Rollins operation is their international pest portfolio, with the acquisition of Adams Pest Control in 2020 solidifying their presence in Australia.
Rentokil’s acquisition of Terminix
It was something of a bombshell when Rentokil announced their intention to buy Terminix Global Holdings for $1.3 billion in cash and 643.3 million new Rentokil Initial shares – a deal that values the US company at $6.7 billion. In a single acquisition they will become the largest pest control servicing company in the US, adding to their existing global market leadership position.
In 2020, pest control accounted for 62% of Rentokil’s annual revenue. Following the Terminix acquisition this will increase to 75%, with a significant rise in their residential business (12% to 35%). Rentokil estimates 61% of their total annual revenue will come from North America, up from 44% in 2020.
This leaves only 39% of the business split across the other 86 countries in which they operate.
On the face of it the fit is near perfect. Rentokil leads with technology and innovation in commercial pest control and has a global presence in nearly 90 countries around the world. Terminix is an established US business focused on residential and termite work. The businesses can be united under a single management team and can be streamlined through shared operations.
In one transaction Rentokil will acquire 375 locations in 47 US states, gaining 2.9 million new customers and 11,400 staff. The new organisation is predicted to be operational in the second half of 2022.
Clouds on the horizon
More generally there are potential clouds on the horizon for the industry. Whilst pest control itself is an essential service, it still has to operate within the world at large the industry is faced with rising input costs, rising wages, and a rising level of inflation.
Despite having no desire to live with pests, the issues of rising costs, wages and inflation will inevitably lead to residential customers starting to feel short of money. The commercial market will get more competitive, and servicing companies will be forced to raise their fees. Covid and the political situation in Europe are both uncertain forces. How this changing business environment affects acquisitions in 2022 remains to be seen.