Pest Control Sector PE Activity Up 18.8 Percent YOY, Capstone Partners Reports

BOSTON, Mass. -  Capstone Partners, a middle market investment banking firm, released its May 2024 Pest Control Market Update, reporting that despite macroeconomic and inflationary strains, growth within the pest control market has prevailed.

In a sector traditionally characterized by recurring revenues and recession resilience, an inflationary environment coupled with a soft residential housing market has led to dampened consumer demand for residential pest control services in the latter half of 2023 and into 2024. However, many pest control operators have evaded pressures caused by softened demand by pushing inflationary costs onto consumers. Furthermore, post-pandemic remote work trends, rising pest populations, and increased regulatory measures, such as the 2024 U.S. Food Safety Modernization Act, are among secular trends expected to drive increased demand for pest control services for the foreseeable future. Notably, as climate change has continued to increase global temperatures, rodent and pest populations are projected to rise, particularly in traditionally colder areas including the Great Lakes and Northeast regions. These trends, coupled with elevated financial buyer appetite, have driven merger and acquisition (M&A) activity in the pest control market and are expected to drive long-term sector growth for the foreseeable future. 

M&A volume in the Pest Control market remained consistent with 2022 levels (78 transactions), with 77 transactions announced or completed in 2023. In an ongoing trend seen throughout the sector, buyer activity in 2023 was characterized by several major acquirers in the space, including Rollins, Rentokil, Anticimex and Plunkett’s Pest Control. M&A consolidation has played a major role in participants’ inorganic growth strategies as the sector has remained heavily fragmented. Sector acquisitions have historically focused on market share expansion via geographic consolidation. However, sector players have increasingly prioritized investments in diversified service offerings and marketing and sales techniques. Investments such as digital marketing, door-to-door sales, brand cross-selling, and search engine optimization (SEO) have enabled sector participants to bolster growth both organically and inorganically through M&A. Major players are expected to remain active buyers as tuck-in acquisitions play a central role in sector-wide revenue growth and geographic consolidation. 

Despite elevated interest rates throughout 2023, private equity buyer activity in the pest control market increased 18.8% year-over-year (YOY). This marks a stark contrast to the broader middle market for private equity activity, which saw a YOY decline of 20.7%, according to Capstone’s Q4 2023 Capital Markets Update. Across the market, financial buyers have increased their investments in service-oriented businesses to circumvent either the recessionary or inflationary-based impacts to revenue seen in other industries. Most noticeably, the Heating, Ventilation, and Air Conditioning (HVAC) Services sector has seen a sharp rise in private equity-backed deal volume over the years (up 175.8% between 2019 and 2023), according to Capstone’s November 2023 HVAC Services Market Update. Furthermore, as inflation increased throughout 2023, the economy witnessed a shift toward services-focused spending. Private equity buyer activity within the sector is expected to continue to rise as firms aim to leverage increased services spending within a recession resilient sector and high dry powder levels in 2024. 

"Sustained interest from strategic buyers coupled with increased interest from financial buyers is expected to continue to drive robust valuations within the pest control sector,” said Capstone Managing Director and Head of Consumer Investment Banking Ken Wasik, the lead contributor in the newly released report.

Also included in this report: 
• Discussion on the impact of macroeconomic and inflationary pressures as well as secular trends on sector growth and M&A activity in the Pest Control market. 
• Analysis of elevated financial buyer activity, with a focus on private equity buyer motivations. 
• Insights into sector-specific M&A trends and prominent acquirers, with commentary on select transactions. 

To access to full report, click here.