Preparing Pest Control Business for Sale

The adverse affects of pests on the health, lifestyle, and home values of South Florida residents make pest control companies a needed service no matter the economic cycle. The pest control industry includes companies focused on preventing and exterminating unwanted mosquitos, rodents, termites, and other insects for residential and commercial properties. The pest control industry has a large degree of recurring revenue where customers are serviced on a regular basis to prevent and eliminate the appearance of pests. Prior to selling, owners should organize their last three years of financial records, de-emphasize their own role in the company, implement regularly recurring service contracts, and hire an industry-specific business broker knowledgeable of how to correctly value pest control businesses while finding strategic buyers such as larger competitors or private equity groups.

Selling A Pest Control Business

The sale of a pest control company should be handled in a confidential manner by an experienced business broker. Confidentiality is especially important for larger pest control businesses with multiple technicians who may quit or be less productive after realizing the business is for sale. The median valuation multiple for pest control companies in South Florida is 2-4 x its annual adjusted owner benefit (or cash flow). The lower end of the valuation range incorporates smaller ‘mom and pop’ owner-operators while the higher range (and above) incorporates large pest control companies with an established brand name and market niche not dependent on the owner’s labor and expertise. The ultimate driver of the value for a pest control business is its future cash flow from its current base of customers and technicians.

Valuing A Pest Control Business

Let us assume that Peter is selling his residential pest control company, Pete’s Pest Control, and as a first step wishes to obtain an accurate business valuation.
In its latest fiscal year, Pete’s Pest Control has $3M in gross sales which results in net profits or adjusted owner benefit to Pete of $500K.
Pete does not work in the field as a technician, and instead functions as the overall manager.
The company has an extensive television and radio marketing campaign, employs 10 field technicians, owns 10 vehicles (used by the techs) valued at $300K, and has grown consistently for over 20 years.
Here, the valuation multiple for Pete’s Pest Control should be at the very high end of the valuation range.
First, the fact that Pete does not work in the field as a technician means that the buyer would not need to incur additional expenses in replacing Pete with another technician.
Pete’s role in the business also lessens the risk of customer defections after the sale since Pete does not actively service customer accounts.
Second, the consistent growth from Pete’s Pest Control over such a long time period indicates that the company has significant competitive advantages to its business model along with a satisfied and growing customer base.
Lastly, Pete’s Pest Control has the proven infrastructure in place that allows it to sustain its sales and profits after the sale.
This includes the scheduling capabilities, quality control, and administrative tasks necessary to employ a large amount of field technicians, match them properly with the right customer, and handle customer relations (including billing) in an efficient manner.
The valuation for Pete’s Pest Control is enhanced further by the $300K of tangible assets (or vehicles) included with the sale, which lessens the capital requirements needed by the buyer.
A premium valuation of at least $2.M (or 4 x the annual adjusted owner benefit) is warranted for Pete’s Pest Control when Pete chooses to list his business.

Licensing Requirements

In Florida, structural pest control companies (providing pest control to homes or other structures) must be licensed by the Florida Department of Agriculture and Consumer Services (FDACS). As a part of this licensing process, the company must show proof of sufficient insurance coverage and must show proof that the company is employing a Florida-certified operator. The operator must be certified in Florida and must pass a written exam administered by FDACS. Owners of pest control companies don’t necessarily need to be certified-operators, as an employee of the business may do so. The licensing requirements serve to insulate the pest control industry from unlicensed competitors. This gives licensed operators pricing power while giving customers peace of mind that they are using a properly insured and licensed pest control company.

Role of Owner

As with many service-oriented businesses, the sale of pest control companies is greatly affected by the role of the owner. It may be difficult or costly for the buyer to replace the owner’s role if the owner is active in the field. This lessens the likelihood that the customer base will remain intact after the sale, and creates costs for the buyer in hiring a replacement (or in personally replacing the seller’s role). For pest control companies with administrative infrastructure in place and multiple technicians in the field, the owner’s role is often managerial (or even absentee) and will not affect the valuation or sales process. Prior to selling, it is always best for pest control company owners to create a transitional plan which addresses the best way to replace the role of the owner and smoothly transition the customer base to the buyer after the sale.

Pest control company owners may prepare their business for sale is by ensuring that their customer base remains intact after the sale. This enables the buyer to get a clear picture of the future cash flow they may expect to receive from the business. The high degree of recurring revenue, natural barriers to competitors by virtue of licensing requirements, and its recession-resistant nature result in premium valuations for many pest control businesses.

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.