[Mergers & Acquisitions] Ehrlich/Rentokil Purchases Presto-X

The pest management industry continued its recent string of high-profile acquisitions with Ehrlich/Rentokil finalizing a deal on Aug. 31 to acquire Presto-X, Omaha, Neb. Presto-X’s revenues this year are expected to exceed $30 million, and combined with Ehrlich, the two firms are expected to generate more than $175 million in 2007.

Ehrlich purchased Presto-X for $38 million in cash plus further cash consideration of up to $7 million based on 2007’s year-end numbers.

The deal was announced in July by Victor Hammel, Ehrlich president and CEO of Rentokil Pest Control North America, and Presto-X Co-Owners Ward Combs II, president, and Jerry Keown, vice president. Presto-X will continue using its brand and all Presto-X co-workers will be retained and continue to operate as they have in the past. There will be no title changes for the Presto-X management team.

BACKGROUND. The two firms are similar in many ways so it’s not surprising Ehrlich was interested in acquiring Presto-X. Both firms have a rich history of being family-run businesses, have been in business for about 75 years and are members of Copesan.

“Presto-X was and continues to be attractive to us because we have known the company for so many years, and we know that their culture and their approach to business is so similar: focus on quality service to customers by first taking care of their associates,” Hammel told PCT in September.

“From the business standpoint, Presto-X is exactly where we are not (located),” Hammel said. “There is very little geographic overlap. It’s a match made in heaven.”

But no matter how long two businesses have known one another, there must be a belief on both sides that each will be treated fairly before, during and after the transaction. Such was the case here.

“This friendship we’ve built with Victor and Bobby Hammel over 30+ years is a major factor in building trust,” Keown told PCT. “In this new relationship we wanted to take care of our associates. Ehrlich assured us that Presto-X’s 75-year principles relating to associates and customers will continue. That was really important to us. ”

For the last 10 years Combs and Keown have often discussed plans about the future of the company and Presto-X had been approached many times before about selling, but the timing, circumstances and potential buyers never were right. “We knew we needed to address what was going to happen when (Jerry and I) weren’t there; we needed to structure the company so that it could continue. We had done some things, we had investigated a lot of possibilities” but no major steps had been taken, Combs said.

In addition, as many companies have learned too late, it’s better to sell on your terms rather than to have your hand forced.

“We needed to put something together so that if something unfortunate happened to one of us, the company wouldn’t have to be sold. We did this on our timetable. That would really disrupt our organization and our team members would feel less secure. The fact this was planned and put together, if there had been an accident and something would have happened to one of us…it wouldn’t have been the same,” Combs said.

From Ehrlich’s perspective, the time was right because the cooperation of Presto-X’s current management team is critical to making the sale and transition successful. 

“Presto-X has a very strong management team and people have been in place for many years,” Hammel said. “Five years from now I’m sure that Presto-X would be a bigger company, but some of the people wouldn’t be as willing or interested to be as active as they’re going to be. We’re very much desiring for their management team to give it 100 percent of their effort. They have people at the right age today and right stage in their career to give that kind of effort to grow Presto-X even further. That might not be the case five years from now.”

FAMILY TIES. Often there are mixed emotions about selling a firm that’s been in one’s family for so many years. But Presto-X’s co-owners both said the sale provides many opportunities for the next generation of Combs and Keowns, as well as current and future Presto-X employees.

Keown’s daughter, Karie, is Presto-X’s general manager and Comb’s daughter, Kristen, is the firm’s marketing director. “It’s a big organization. They both saw opportunities with the two firms merging. It would have been very difficult for Presto-X to offer the many opportunities our associates are going to see in the next few years with the combined organizations,” Combs said.

And even though such a sale provides many opportunities for the company and its people, there are often second thoughts on the part of the sellers.

“I think any time you’re involved with an organization as long as I have been with Presto-X (45-plus years)…you will always experience some seller’s remorse in this regard, because of all the fond memories,” Keown said. “We’ve grown substantially over these years, that in particular was something that I felt really good about and really good about the people who made that possible.”

The authors are editor and managing editor, respectively, of PCT magazine.

How Were Presto-X's 300 Employees Informed?

Mid-morning on July 30, Presto-X held a conference call with its management team to inform them of the sale. Later that day, company officials hosted another conference call for all of its employees who were able to call in at the time. Presto-X also filmed a video that all employees could watch throughout the following days, said Ward Combs, Presto-X president.

Additionally, Combs and Jerry Keown, vice president, have visited all of the company’s service centers and addressed any questions that have arisen. “Most questions were answered in the video and conference call,” Keown said. “There doesn’t seem to be a lot of concern because our associates haven’t seen any changes.”

About the Firms

Name: Ehrlich Pest Control/Rentokil North America
Headquarters: Reading, Pa.
Founded: 1928
2006 revenues: $144 million
Number of employees: 1,600
Number of offices: 56

Name: Presto-X
Headquarters: Omaha, Neb.
Founded: 1932
2006 revenues: $28,600,000
Number of employees: 300
Number of offices: 21

Impact on Copesan

Ehrlich/Rentokil’s acquisition of the Presto-X will most certainly mean that further changes are in store for Copesan, an alliance of regional pest management companies that are united to service regional and national commercial clients.

Ehrlich/Rentokil and Presto-X are both large Copesan members that operate in separate territories, so when Ehrlich/Rentokil acquired Presto-X there were understandably concerns among Copesan members about how service territories would be impacted.

“Yes, there was some uneasiness and some unknowns,” said Copesan President Deni Naumann. “But based on the operating models both companies shared with (Copesan) they were able to allay those fears.” Specifically Victor Hammel, Ehrlich president and CEO of Rentokil Pest Control North America, and Presto-X co-owners Ward Combs, II, president, and Jerry Keown, vice president, explained that once the companies merge they will operate as separate entities with separate presidents, management teams and service areas.

“I think we’ve addressed those questions and the (Copesan) board has indicated we’ve asked for permission to continue on as we have in the past and to represent Copesan in the areas we represent Copesan currently with Ehrlich continuing to represent Copesan in the areas where they represent Copesan,” Combs said. Combs added that there are still parts of the country that these two organizations together don’t cover. “We very much need Copesan to be successful,” he said.

Naumann said the acquisition will allow Copesan to better serve its national clients. Under the current Copesan business model, each service territory has primary and secondary Copesan partners from which Copesan clients can choose. “I think Ehrlich/Rentokil’s acquisition of Presto-X-Company fits into our strategic initiative of solidifying our business model of having primary and secondary partners throughout the nation,” Naumann said.

This is third major shakeup within Copesan in the last three years. In 2004, Orkin purchased Copesan partner Western Pest Services, and just last year Copesan, for the first time in its history, allowed a publicly traded company to become a part of the group after J.C. Ehrlich was acquired by Rentokil.

“I think the success of the business model is its ability to work with those partners that may have started out very small but through their own organic growth have gotten bigger and bigger over time,” Naumann said. “We’ve continued to adapt and find ways to work with that company that wants to grow organically and also how we can utilize that skill and expertise to assist with our national client base.”