When acquiring companies evaluate businesses for prospective purchase, they might be looking to broaden their geographic reach, increase the density and profitability of their existing geographies, or add new service capabilities or talent. But it’s all about growth, says Tim Pollard, senior executive vice president and COO of Atlanta-based Arrow Exterminators.
“Growth has always been, and will remain, a core value for Arrow,” he explains. “We measure and manage our growth to maintain a balance of internal and acquisition growth that ensures our company’s continued health and strength. Over the past eight years, Arrow has consistently grown at double digits annually, with acquisition growth representing 2 to 3 percent of the total. Growth through acquisition enables us to enter new markets and create new opportunities for existing and future team members.”
Growth through acquisition has enabled Rentokil to provide services to more than 90 percent of the population of the U.S. and Canada, says John Myers, president and CEO of Rentokil North America. “We became serious about acquisitions in the North American market in 2006 when we acquired JC Ehrlich,” he says. “Since that time, we’ve focused on seeking out the right businesses to partner with, and we’ve been able to add over 50 companies, along with some great new service lines and, most importantly, some great new colleagues.”
Pollard says that a primary driver in Arrow’s consideration of a company is strong recurring revenue, because it’s a good indicator of the company’s health and sustainability; market geography plays an important role as well. But cultural alignment tops every other factor. “We want to ensure the companies we are merging with are a strong cultural fit and represent a similar philosophy. We believe we have a culture worth protecting,” he says. “Growing through acquisition means aligning with good companies.”
Rollins President and COO John Wilson agrees. “We take a number of factors into account — size, business mix, pricing, growth rates, etc. — but the importance of each of these criteria differs depending on where the business is located and our existing portfolio of business in that particular area. The constant for us in every situation, though, is the quality of the people running the business. When we find good people, we know that we are very likely to find satisfied customers, good trends, good business practices and a quality reputation.”
Wilson believes that the vital importance of cultural fit is often overlooked by acquirers. “We do a deep dive to understand the values that drive that culture and whether those values are shared,” he explains. “Often, we pursue companies that appear to have different cultures but actually have similar thinking about people, customer service, knowledge-sharing and constant improvement. To determine whether we have a cultural fit, we spend time with owners as often as we are able, and also open our eyes to see how the company operates in the marketplace.”
Myers’ team looks for companies with strong local management teams who pay their technicians well, believe in ongoing training and provide great service at a premium price. “We are quite selective regarding our acquisition partnerships, and we find that the single most important criterion, whether the company has $1 million or $100 million in revenue, is cultural fit. We believe we must share the same fundamental values, such as the importance of strong personal relationships with both colleagues and customers, as well as the commitment to offering the best possible service,” he says.
Plunkett’s Pest Control President Stacy O’Reilly looks for this important cultural alignment with potential acquisition partners, too, and she studies the company’s customer base intently. “Our system best integrates with a client base of recurring services and stability,” she shares. “Customers who shop on price do not generally appreciate our service/value offering: more service at a premium price.”
O’Reilly says she considers companies with the potential to strengthen Plunkett’s in the following ways:
- Increasing route density. O’Reilly shares, “Route density makes for happier technicians and clients. If you can make routes geographically smaller, technicians drive less and clients get quicker response.”
- Presenting an opportunity for Plunkett’s to provide senior leadership in a new or remote market. “This is an obvious win for us and our clients,” she says. “Owners and employees often appreciate the opportunity to stop working on administrative tasks and focus more fully on the client experience for a change.”
- Building expertise in a specific service line. Strategic acquisitions can help acquirers add to or build up the services they offer, making them less vulnerable competitively. Plunkett’s acquisition of Varment Guard Environmental Services, for example, bolstered their bird and wildlife service lines.
- Increasing Plunkett’s presence in a high-potential market. “We are always looking to invest and grow in markets where our strengths can be applied through local teams that may not have as wide an array of services,” O’Reilly explains.
Regardless of the motivation, however, it’s clear the pest management industry is in the midst of a robust period of M&A activity that doesn’t show any signs of slowing down, at least for the time being.