Rentokil-Terminix Deal Closes, Integration Begins

Although the dust has just settled on this deal, there is clarity on some issues and questions remaining on others. One of the big questions that has been answered is regarding leadership. Rentokil announced that as part of the merger, Brett Ponton has been appointed CEO of its North America region, while John Myers has been appointed CEO of the U.S. Pest Control business, reporting to Ponton.

Rentokil now fully focuses on its integration plans, which CEO Andy Ransom said in a press release were “already in place” and can now be executed.

The pest control industry will be watching Rentokil’s next steps, including the following areas.

Integration and Rebranding. Tim Mulrooney, equity research analyst at William Blair, said he’s curious to see how Rentokil goes about integration and rebranding. Mulrooney cited Cintas’ “slow and steady” integration of G&K Services as a good one for Rentokil to follow. In that merger, Cintas integrated a percentage of G&K’s branches each quarter until they were all eventually fully folded into the Cintas brand. In other words, Mulrooney said, Rentokil should “not try to do too much all at once” such as integrating, rebranding or closing too many branches simultaneously.

In terms of brand integration, it will be interesting to see if Rentokil will rebrand its operations such as Presto-X, Steritech and Ehrlich into the Terminix brand. In many of its North American acquisitions, Rentokil co-branded initially before those companies operated just as Rentokil. The firm may proceed similarly here. For example, on the residential side, it’s possible that current Rentokil brands will operate with the Terminix name initially (e.g., Presto-X Terminix) and eventually just use Terminix.

Employee Retention. Due to the scale of the deal, synergies are expected to occur at the corporate and upper management level where there are known redundancies. It will be important for Rentokil to minimize turnover at the Terminix branch manager and service technician level. Strategies Rentokil may use include aligning Terminix employee salaries with those of their Rentokil counterparts and incentivizing Terminix employees to stay on board with retention bonuses.

Customer Retention. Another area Rentokil will most likely examine is Terminix’s customer retention rate. Once they have determined that rate and by how much they want to improve, they will then plot out the steps needed in order to hit those customer retention benchmarks.

Termite Claims. Mulrooney said another key focus for Rentokil’s North American operations will be the Mobile, Ala., termite claims. Although as of the second quarter 2022 litigated termite claims were trending upwards, Mulrooney attributed this to a slowdown in resolutions, which in his view is “potentially due to a slowdown in court-case resolutions (i.e., COVID disruption), rather than a major spike in new litigated claims.” Mulrooney said what gives him greater confidence is the fact that non-litigated claims continue to move in the right direction. “They continue to go down, down, down. And that, of course, is the pool from which litigated claims are pulled from."