How to Sell a Pest Control Business
Pest control is an evergreen industry in which smaller companies can quickly gain value.
According to Allied Market Research, “The global pest control market forecast was valued at $20.6 billion in 2019, and is projected to reach $30.0 billion by 2027, growing at a CAGR of 5.2% from 2020 to 2027.” This suggests a lot of healthy competition in the market.
The big names in pest control such as Terminix, Rentokil, and Orkin take up a large amount of market share, but the owners of smaller companies can also run valuable businesses. Your business can even become an attractive acquisition target for one of the major brands, as they expand into new areas.
If you want to sell your pest control business, you’ll want to know the basics of valuing your company, raising its worth, and fully completing the process to ensure a great financial return. It’s wise to work with a competent broker who can walk you through all of the details.
Factors Affecting The Value Of Pest Control Businesses
Many variables unique to the pest control market can influence a company’s ultimate sales price.
If you provide your services in an area lacking a lot of competition, your business has the advantage and is potentially more valuable.
Also, if some of the larger pest control brands are expanding into your area, they might look to acquire your company if you’re the major player in your local region.
Technology And Other Tangible Assets
Pest control equipment, such as safety items, spraying equipment, and other tangible (physical) assets that belong to your business can contribute to your company’s value. This may be especially true if you use patented pest control technology as part of your services.
Marketing And Brand Presence
A strong brand is key for raising a pest control company’s value. It’s a sign that customers of all types have come to trust your services.
This can be quantified by both word-of-mouth referrals and lots of customer reviews in places like Google My Business, Yelp, and Facebook, as well as home services directories like Angi (formerly Angie’s List) and HomeAdvisor.
Proactive marketing can also do a lot to build a pest control brand. This can include offline advertising such as in local circulars, radio, and TV spots, as well as online efforts like social media ads, SEO, and maintaining an active email list.
According to HubSpot, email marketing generates up to $42 for every $1 spent, making an engaged email subscriber list a very important channel for recurring revenue for a pest control business.
The stronger the brand is, the better-positioned a company is to fetch a high price when the owner chooses to sell.
Individual homeowners may only need pest control interventions once or twice. However, multi-unit landlords, schools, and commercial clients like offices, hotels, restaurants, and retail stores may need continual services.
Contracts can be a dependable source of revenue, which may raise the value of the business.
If your pesticides are made with eco-friendly, sustainable, or biodegradable ingredients, this might be popular enough in certain local markets to raise your company’s value.
As larger buyers such as big-brand pest control enterprises and larger home services contractors look for environmentally responsible business, your use of eco-friendly materials can be an important selling point.
Valuing A Pest Control Business
Two common formulas used by brokers to value pest control businesses are EBITDA and SDE.
SDE As A Business Valuation Formula
The Seller’s Discretionary Earnings (SDE) formula is often used to appraise smaller businesses with a single owner. It is based on the owner’s personal earnings, and the formula is as follows:
(Pre-tax, pre-interest earnings) + (travel, vehicles, other transactions counted as business expenses)
SDE adds back expenses that represent some amount of benefit to the owner, such as a personal salary, travel, vehicles, and contributions to charity. Individual investors might look at SDE to project their financial position as a sole owner-operator.
Using EBITDA For The Valuation
The “earnings before interest, taxes, depreciation, and amortization” (EBITDA) formula adds back business expenses to the total earnings, as the name suggests. It is often used to value larger, more complex companies.
SDE and EBITDA are both calculated with multiples to arrive at potential sales prices. A small pest control company might sell for 3-5x the dollar value of earnings determined by the formula, depending on any number of factors.
Selling will require an understanding of who is most likely to buy pest control businesses, why, and the best ways to interact with them.
What Do Buyers Of Pest Control Companies Want?
Different types of buyers have different objectives when purchasing a pest control service. As a seller, it’s to your advantage to understand them in order to present your business in the most appealing light and earn the highest amount possible at the point of sale.
Typical buyers of pest control businesses are:
Big Pest Control Brands
Massey, Rentokil, Orkin, and other widely-known pest control brands often buy smaller companies when they want to build a dominant presence in a new local region.
They might be attracted by a stable, local, service with long-term contracts that have become the definitive pest control leader in its city or town.
General Home Restoration Businesses
Large home restoration brands with a range of services such as repair, renovation, remodeling, and HVAC may want to add pest control services as an option.
If your pest control business has a strong brand, a roster of loyal customers, and effective services, it can improve your strategic positioning.
Single investors might be interested in using a loan from the U.S. Small Business Administration (SBA) to buy a small pest control business that is relatively simple in structure, lean in operations, and can be reliably run by just one or a few people. It also helps if the business has existing contracts in place.
Private Equity Firms
Private Equity (PE) firms look to pour resources into businesses to raise the value, and then sell them for much more than the original purchase price, to a larger corporation.
If your operations are stable and secure, with a high amount of growing monthly recurring revenue (MRR) and a decently-performing brand, PE firms could contact you. It helps to be easy to work with as an owner. Even after selling your business to a particular firm, it’s often the case that an owner stays on in a managing role.
Savvy buyers will also want to make sure you’ve done your due diligence, which includes having your legal and financial documentation fully in order months in advance of the sale.
Navigating the field of buyers and what they’re looking for can be a complex minefield. Due to the potential pitfalls, it’s best to work with an experienced broker. A professional can help you complete the background due diligence, introduce you to qualified buyers, and help you fetch a fair price.
Working With A Broker
If you’re looking to sell your pest control business for the highest amount possible, it’s smart to work with a professional broker at Raincatcher.
Our brokers have extensive experience in the pest control business and understand the nuances of what creates the most value in the market. We are uniquely positioned to walk you through the due diligence process, help you with marketing to raise the value of your brand pre-sale, and connect you with serious buyers.