[Cover Story] Niche Acquisitions

As the pest management industry continues to grow, many companies consider acquisitions as a key tool to help them make the transition to the next level of business.

“Mergers and acquisitions will always have a significant impact on our industry as national players continue to utilize M&A as an alternative budget component to preserve their aggressive expansion campaigns,” said Joey Edwards, a 25-plus-year industry veteran and CEO of J. Edwards Services, a mergers and acquisitions firm based in Atlanta.

Edwards, who spent nearly two decades with Arrow Exterminators, Atlanta, said more companies are starting to use mergers and acquisitions to maintain or expand their level of business as other segments shrink.

MARKET FACTORS. Edwards said the past decade has seen many pest control companies grow — but termite revenues haven’t been as robust as in the past, thanks in part to the declining housing market and lack of swarms.

He said companies can bounce back from this revenue loss by growing — or acquiring — new ones. Offering such other services as wildlife management is a natural extension for many PCOs since managing disease-carrying pests is a service they already offer their customers. And, buying smaller, niche companies would allow for faster growth of revenues than developing the services in-house.

“The need to offset the loss in termite revenues has companies looking to cross over into other services such as wildlife control, lawn and ornamental, insulation, as well as other related services,” he said. “It’s starting to build up a head of steam at this point.

“Make no mistake, regional and national companies will utilize acquisitions as a vital segment of their budgeting process for future growth,” Edwards said. “While ancillary services and organic growth will continue to be key components for success, both regional and national companies will need to budget for acquisitions in order to accomplish the revenue increases they’re accustomed to achieving.”

SELLER’S MARKET. Edwards said sellers are still in the driver’s seat in today’s market — as they have been for the past decade. Buyers outnumber sellers by a five-to-one ratio, he said, and that won’t change unless the economy takes a dramatic downturn.

“Unless our economy falls into a full-scale recession, I believe sellers will continue to be in control of their destiny,” he said. “The sputtering real estate and construction markets along with escalating gasoline prices certainly have our industry braced for leaner times ahead.”

MERGERS OR BUST. But Edwards said a soft economy could be a boon for some PCOs: It could give them a chance to acquire smaller companies, and their employees.

“A flat economy should be the best time for regional and national companies to acquire businesses and also pick up much needed talent, which is a real bonus with aggressive expansion,” he said. “Major players have stated time and again, one of their primary issues with rapid growth, is the concern of maintaining a bench of experienced talent, especially at the management level.”

The author is assistant editor of PCT magazine.