[Mergers & Acquisitions] A Marriage of Equals

While the principals of both the Sorex Group and Whitmire Micro-Gen insist that customers will see very little change in the near future, the apparent synergism of this newly merged entity promises to have a measurable impact on pest control in both Europe and North America.

Recent interviews conducted by PCT with Dr. Roger Johnson, managing director, Sorex Limited, Widnes, Cheshire, Great Britain, and Andy Symons, president, Whitmire Micro-Gen, St. Louis, Mo., emphasized the complementary nature of their core technologies and distribution networks, as well as similarities in their customer service goals and corporate cultures. They also hinted at the strategies and tactics for the company’s "going-forward" strategy.

OUT OF AFRICA. Although Dr. Roger Johnson isn’t particularly well known in the U.S. pest control community, he has more than 35 years of industry experience throughout the world. An entomologist by training with a Ph.D. in insect endocrinology from Imperial College, Johnson studied locust control and termite damage to sugar cane in Nigeria as part of an overseas aid program early in his career, where he earned his "termite stripes." "I studied termites as pests of crops," he said, "and I became a tremendous admirer of termites. They’re impressive insects."

After studying termites in Africa, he joined Shell International as a consultant in 1981, leading the company’s worldwide sales effort for aldrin and dieldrin, two widely used termiticides. "I went from a civil servant living in the African bush to traveling first-class for a major chemical company," Johnson recalls. "It was a tremendous transformation for me. I suddenly was exposed to the commercial world."

Sorex, at that time, was part of Shell Chemicals. It had begun its life after WWII to address a shortage of chemicals to control rodents. Pioneering work in the use of anticoagulants led to the development of dicoumarol, one of the world’s first anticoagulant rodenticides. When warfarin was discovered in the U.S., Sorex secured the European rights to market the compound in 1951. With the emergence of warfarin resistance in the mid-1970s Sorex invented the second-generation anticoagulants — brodifacoum and difenacoum — and signed a 20-year agreement with ICI to develop them globally.

In 1985, when Sorex asked Johnson to develop Shell’s anticoagulant rodenticide flocoumafen for the world market, he agreed, despite having limited knowledge about rodents, being an insect specialist. However, he did understand the Shell corporate culture and had a working knowledge of the pest control market. "My Shell experience certainly influenced my thinking about how to build and run a business," Johnson said. Eventually, he was promoted to managing director of Sorex.

SOREX SOLD. In 1995, Shell sold its ag business to American Cyanamid. Sorex remained with Shell, but its activities were largely confined to the United Kingdom where it had become the dominant supplier of rodenticides, commanding more than half of the rodenticide market and a significant portion of the public health business.

In 1996, Sorex was sold to a group of private investors who recognized its U.K. strength, but directed it to become a dominant factor throughout Europe. "When the day of liberation came, we were ready," Johnson said. "We generated about $1 million in sales during the first 18 months we expanded our market reach."

The company’s success attracted the attention of Zeneca Professional Products, a multi-national chemical company based in Great Britain producing fungicides and other agricultural products. "They approached us to market their rodenticide brands across Europe using their trademarks. They didn’t feel they were fully exploiting the assets they had," he said. It was a good partnership, he added, and an indication of things to come.

MARKETING AGREEMENTS. When Zeneca merged with Novartis in 2000 to become Syngenta, Sorex purchased the difenacoum intellectual property, while Syngenta retained brodifacoum.

Today, Sorex Group is the holding company for two companies — Sorex Ltd. and Network Pest Control Services Ltd. The companies operate independently in the U.K. market but combine their strengths outside the U.K. in a single international business division called Sorex International.

Sorex focuses on the urban pest control market and supplies products to the farm health and hygiene market that include a range of rodent control, sanitation and insect control products. In addition to marketing its own brands, developed and patented through its R&D operations, Sorex sells additional brands through licensing agreements and strategic alliances with various supplier partners. Since September 2002, these brands have included Whitmire Micro-Gen’s Prescription Treatment® products and support services.

FROM THE BEGINNING. Whitmire Research Laboratories Inc., of St. Louis, Mo., was founded in 1934 and developed its reputation as an innovator of insecticide formulations and equipment for the structural pest control and horticultural industries. Micro-Gen Equipment Corporation of San Antonio, Texas, was founded in 1970 and was a key manufacturer of fogging equipment and bulk pyrethrum chemicals, eventually becoming a subsidiary of S.C. Johnson.

Whitmire Micro-Gen was formed in 1995 when S.C. Johnson purchased Whitmire and merged it with Micro-Gen. Today, Whitmire Micro-Gen is a leading supplier of general insect control products and equipment to the U.S. structural pest control industry. The company manufactures aerosols and baits for insect control and are developers of innovative fly control equipment, ultra low volume fogging equipment and microencapsulation technology, as well as termite bait technology.

CASH TALKS. The sale of Whitmire Micro-Gen to Sorex came about as a result of S.C. Johnson Commercial Market’s acquisition of the Diversey Lever business in May 2002, taking on $1.5 billion in debt and forming JohnsonDiversey. To service the debt, the company sought to divest some of its non-strategic businesses, one of them being Whitmire Micro-Gen.

In November 2003, JohnsonDiversey distributed an offering memorandum to several companies that might be interested in purchasing Whitmire Micro-Gen. An obvious candidate was Sorex, which had earlier entered into a strategic marketing partnership with Whitmire Micro-Gen.

When Roger Johnson learned that Whitmire Micro-Gen was up for sale, he visited St. Louis with the Sorex team last December to hear the sales presentation. "Because of our earlier strategic alliance, we knew some of the products and staff, but we didn’t know the whole story of the company," he said. Sorex was on the lookout to expand its insecticide range. "We had a wide range of rodenticide products and bird-proofing materials, but we didn’t have a quality range of insecticide products."

After sitting through the presentations, he said to himself, "This company is just like Sorex. The products are different, but we share a similar culture and philosophy of business." He noted that Whitmire Micro-Gen is a stand-alone company, committed to research and development, and is very close to the customer. He also was impressed with the professionalism of the Whitmire Micro-Gen people and their commitment to product stewardship.

When management presentations to five or six interested candidates were concluded, a bidding process was held which Sorex won, and the deal was closed in June 2004.

PILLARS FOR GROWTH. Andy Symons told PCT that Whitmire Micro-Gen had identified several "pillars for growth" in its strategic plan prior to the merger, including the termite control market and opportunities in the international market. They already had begun to address the former when they launched their Advance™ Termite Bait System last year (See PCT February 2004), but they were still looking for ways to rapidly expand their international presence.

"Europe was a key target market," Symons said. "However, initially we weren’t interested in developing an infrastructure overseas." When they began looking for possible partners who shared their business philosophy and vision, it immediately became apparent that Sorex was one of those companies and the strategic alliance was formed in 2002.

"It was a good fit because Sorex didn’t have a competitive product line and they had good geographic strength throughout Europe and we had good geographic strength in North America." When JohnsonDiversey decided to sell, it was an ideal marriage between two moderately sized companies, coming together with nothing but an upside from a customer perspective or a staffing perspective, Symons said.

"We didn’t have to cut staff or shed any products due to FTC concerns," Symons said. "It’s a very positive situation. Roger heads up the Sorex group. I head up the Whitmire Micro-Gen group, and we report to the Sorex Holdings Group’s seven-member Board of Directors." Both Symons and Johnson are members of the board.

STAY THE COURSE. Symons said the challenges facing Whitmire Micro-Gen now are the same challenges that preceded the transaction. "Our philosophy and strategic vision remains the same. The customer shouldn’t see any dramatic changes in the business. We’re simply better equipped to serve our markets in the U.S. and Europe, while gradually expanding our market presence internationally," he said.

"Initially, the companies will operate separately and, despite the anticipated future strategic gains, customers are not anticipated to see any changes," Johnson said. A name change is not planned for either company as a result of the merger and there will be no changes to the company’s management team, manufacturing facilities or sales offices.

Regarding who will sell what where, Symons stated that Whitmire Micro-Gen will continue to represent the group in North America, Canada and Mexico. Sorex will represent the group in Europe. He notes that a decision on products to be sold in each of these markets is yet to be determined.

Both groups are interested in future development of markets outside Europe and North America, specifically Asia, Australia and Latin America, but not at the expense of their primary markets. Johnson pointed out that Europe and the U.S already represent 65 percent of the worldwide urban pest control market.

MERGER OF EQUALS. "This isn’t a classic merger," Johnson observed. "Sorex is a strong European company with a clear strategy. Whitmire Micro-Gen is a strong North American company with a clear strategy. It’s a merger of two equals." Each has approximately 90 employees and, while Whitmire Micro-Gen sales are twice that of Sorex, profitability as a percentage of sales is very similar.

Unlike many mergers, Symons said, they didn’t come together to save money and cut costs. They came together to develop market opportunities and plan to invest in several expansion categories, including termites and public health.

Symons sees opportunities outside the corporate confines of Sorex and Whitmire Micro-Gen as well. "Since the company will now have access to both the North American and European markets, this will make us a strong ‘access partner’ for chemical companies interested in partnering with Whitmire Micro-Gen/Sorex in products formulated for these markets." He sees them as an appealing partner for companies that don’t have an infrastructure in place in either of these markets.

Both also see the opportunity for "significant technology transfer" between the two firms. "I’d like to think we’re both innovative companies," Johnson said. "I think we’ll begin to see significant cooperation and R&D between the two companies in very short order." Now that they have access to a large part of the global market, they will be in a much better position to publicize their track record of innovation, he says.

"Our plan is to move ahead with business as usual, heading into the NPMA Convention," Symons said. "The primary question people are asking is, are we going to bring Sorex’s rodent and bird products into the North American market? We’re currently evaluating that question. How we respond will be determined by if it makes economic sense and if it brings value to the market. It’s something we’ll be considering in the months ahead."