It’s been almost seven months since COVID-19 changed life in the United States as we know it.
Nothing prepared us for the disruption and economic anomalies it has caused — not 9/11, not the Great Recession of 2007-09.
Consider this: While the U.S. unemployment rate reached a level not seen since the Great Depression, extraordinary amounts of government stimulus money kept people spending and the stock market rising, even while record numbers of businesses closed.
“It’s one of the oddest economic environments I’ve ever seen,” said Dan Gordon, a CPA and managing partner of PCO Bookkeepers in Newton, N.J.
Pest management companies, while not immune from the chaos, were deemed an essential service so work continued…but differently. The pandemic changed how we interacted with clients and employees, managed operations and grew the business. It certainly accelerated market trends already in play.
So, is this “new normal” here to stay? Pest management professionals and industry experts shared with PCT how they see the future unfolding. Read on for insights into what we think are the biggest changes to the professional pest control market due to the pandemic.
1. No-Contact Pest Control Treatments are Requisite.
Pest management companies in the South (and other areas) have long performed exterior-only perimeter treatments for pests. That practice has now become more widespread.
Earlier this spring, 46 percent of PMPs were only doing perimeter services, according to a survey conducted for PCT by Readex Research, an independent market research company.
“We’ve always done exterior only, inside on request. Now it’s more than ever,” said Joe Cantu, director of operations at The Bugmaster in Austin, Texas.
Customers didn’t want technicians entering homes and potentially exposing them to the virus.
Technicians, who interact with numerous customers a day, had similar concerns. “They’re really putting themselves out there and I think a lot of them maybe have gotten a little shy about doing that,” said Angie Persinger, human resource manager, Rose Pest Solutions, Northfield, Ill. Exterior-only treatment helped put them at ease, she said.
“It stands to reason that this is going to force those companies that were doing both inside and outside on every service to orient to an exterior service model because it’s a no-contact model with customers,” said Stoy Hedges, a pest management industry consultant.
Requiring clients to prepay for services or have credit cards on file helped reduce exposure. So did technology like Ring and Google Home, which customers used to remotely let technicians indoors.
Electronic rodent monitoring (ERM) gained greater awareness, as well. “People might be more open to (ERM) than maybe in the past when they were a little reluctant or cynical,” said Dominique Stumpf, CEO of the National Pest Management Association.
2. Commercial Work Is No Safe Harbor.
In past economic downturns, commercial work was a constant. COVID-19 flipped the script with many commercial clients likely gone for good. “Unfortunately, a lot of small businesses are probably not going to make it through this. They can’t afford financially to do it the longer this shutdown continues,” said Hedges.
From March through June, more than half (55 percent) of businesses reporting temporary closures later shut down permanently with the restaurant industry suffering the greatest loss, according to a second quarter report from Yelp, the online review site.
Rollins saw commercial revenue decline 5.2 percent in the second quarter.
BUGSolutions of Tennessee, based in Murfreesboro, had more apartment property managers request that only complaint units be treated (versus all units each quarter). “I think some of that may end up sticking, which will change the way we do things long term,” said Operations Manager Michael Clark.
Commercial work takes more coordination now, as well. “A lot of people work from home these days and sometimes we don’t have access to a location. You need to have somebody available to give us the key,” said Mohammed El Damir, technical and training director at Adam’s Pest Control in Medina, Minn.
Commercial clients lost to closure eventually may be replaced by new ones. Applications for new U.S. businesses that plan to pay wages were up more than 50 percent in August compared to last year, reported the U.S. Census Bureau.
3. PMPs Will Continue to Offer Disinfection Services.
Early on, some pest management companies rolled out new disinfection services (or expanded existing services) to reduce virus transmission. The revenue stream kept many firms working and hiring during the early part of the shutdown.
Globally, Rentokil Initial trained 7,000 employees to provide disinfection services, generating nearly $64 million (£49 million) in the first half of the year, according to a second-quarter earnings report.
In April, The Bugmaster began offering disinfection service to restaurants, multi-family housing and office buildings to help reassure employees returning to work and tenants living in close quarters. From June to August, the service accounted for 4 to 6 percent of total company revenue, said Cantu.
He expected this work to continue. “I don’t think the disinfecting services are going to go away. I think that it’s just going to be part of the norm,” he said.
Hedges said revenue from disinfection likely will decline as COVID case numbers drop and fears subside with the arrival of vaccines. He also thinks it’s likely that big hospitality clients will train their own staff to perform this service.
If COVID-19 sticks around long term, companies like Adam’s Pest Control that initially chose not to offer the service may do so.
4. Being Flexible Works.
The industry has long toyed with four-day work weeks, flexible hours and remote work as a way to attract and retain new hires. The pandemic forced PMPs to embrace such work arrangements to keep companies running.
Billy Blasingame, owner of Blasingame Pest Management in Locust Grove, Ga., found office staff was more productive working from home with the right software and zero commute time. “I think a lot of businesses never really considered that” until COVID-19, he said.
Working remotely was easier for companies with paperless operations, where technicians drive service vehicles home and use routing apps instead of going into the office for paperwork.
Still, to dispense product and address issues, Michael Clark of BUGSolutions of Tennessee met technicians individually in the field. Akron, Ohio-based Epcon Lane Pest Control had staff come into the office at staggered times and initially held meetings via Zoom. Meetings now are held in the service bay with chairs 6 feet apart and the garage door open.
PMPs say they want social events, impromptu gatherings and industry events to return soon. “We enjoy seeing each other. It gives us an opportunity to bounce ideas and situations off of each other and talk to like-minded people,” said Clark.
5. PPE is More Important Than Ever.
The professional pest management industry has long used personal protective equipment (PPE) when applying pesticides. The pandemic underscored its value in protecting and reassuring employees and customers.
In addition to requiring the use of masks, face shields, gloves and hand sanitizer, companies installed partitions in offices and customer service centers. Rollins employees underwent daily health screenings before entering shared offices.
“You can’t cut corners on PPE. You want to keep your employees safe. You want to make sure your customer feels safe if you have to enter their home,” said Nick Helzer, president of ABC Termite & Pest Control in Lincoln, Neb.
Besides wearing PPE, ABC employees now ask customers a series of COVID-19 screening questions based on U.S. Centers for Disease Control and Prevention guidelines. The company also gained new customers whose existing service providers weren’t wearing masks. “Being sensitive to the whole situation; I think that’s part of the reason that we thrived as well,” said ABC general manager Tom Potter.
Daniel Morin was considering requiring his customers to wear masks. As an owner-operator, he loses income if he gets sick or has to quarantine. “I’m going to demand that they either wear the mask or they’ve just forfeited their payment. You’re not going to put my life in jeopardy because you don’t feel comfortable wearing a mask,” he said.
7. Your Service is Under Scrutiny.
With more customers spending time at home, more people are noticing their pest control service is not performing as they expected.
“People are really awake to everything going on in their yard (and) their home because that’s where they’re at now. They’re seeing that their service is not working,” said Helzer, ABC Termite & Pest Control. His company gained customers who felt they were paying for inferior service.
As such, pest control companies need to elevate their game; they’re not going to get by with what worked in the past when homeowners were too busy to notice.
“When you’re home all day, of course you’re going to see when the pests are running out. People probably are noticing whether they’re getting their money’s worth or not,” agreed industry consultant Stoy Hedges.
8. M&A Activity is Back to Normal (For Some).
Early in the pandemic, buyers hit pause. “By the middle of March, Rentokil and Anticimex put all transactions on hold” and companies went into cash preservation mode, said Paul Giannamore, managing director of The Potomac Company, which conducts mergers and acquisitions in the pest management industry.
“We had several deals that got shelved,” agreed Dan Gordon, PCO Bookkeepers. Buyers “didn’t know what the future held,” he explained.
Patrick Wyman, owner of Epcon Lane Pest Control, wanted to buy a business pre-COVID; now he’s unsure. “I can’t see myself jumping into something and (the seller) hasn’t gotten back to me with his numbers yet,” he said.
By mid-August, however, M&As were back on track. “It’s promising to be a busy fourth quarter. We’ve already got $100 million in transactions queued for October 1. Most of that was pre-COVID stuff. It’s finally going to get done,” said Giannamore.
He said transaction multiples will remain consistent with late 2019/early 2020 levels through year end for large, high-quality companies, while low-quality companies will see valuations soften. The November elections and possible changes to the tax code prompted some potential sellers to accelerate going to market, added Giannamore.
Interest in the industry will stay strong. “Buyers are still out there,” said Joe Finnerty, a CPA and principal of Colm Advisory in Philadelphia who has completed M&As in the pest control industry. Investors realize “this is a great, predictable, strong, recurring cash flow business that is going to keep on trucking if there’s additional shutdowns this winter,” he said.
9. Diversification of Services Is a Winning Strategy.
Companies that specialized in one type of service or sector felt the impact of COVID-19 more than those that were more diversified.
ABC Termite & Pest Control saw its bed bug work plummet since few people were traveling. “We were a little concerned about that, however the mosquito applications really increased” with customers home more, said Tom Potter.
Firms that primarily service restaurants “are hurting,” added Wyman, Epcon Lane Pest Control. “Right now, they’re just holding on to their britches and hoping that we get a vaccine quick,” he said.
Offering a wide range of services isn’t easy. “It takes more work to train your employees to know everything,” said Helzer, ABC Termite & Pest Control. He experienced the value of diversification when the housing market crashed in 2008 and termite pretreat companies went out of business. “The ‘mutual fund’ mentality is the way to go,” he advised.
“Like anything, being diversified helps you defray and endure hard times,” added Stoy Hedges, industry consultant.
10 . The Urban Customer is Leaving.
In the early 2010s, people flocked to the nation’s largest cities, but according to a recent analysis of U.S. Census Bureau estimates by The Brookings Institution, that trend stalled and populations in cities like New York, Chicago and San Jose have declined for the past three years.
COVID-19 is helping fuel the flight from big urban centers to suburban and mid-size markets. In a second-quarter earnings call, Rich Barton, CEO of the online real estate database company Zillow, said the U.S. real estate market is “at the dawn of a great reshuffling” as people relocate to homes with more privacy and space to accommodate working from home.
Barton said COVID accelerated the “deceleration of migration” in high-density urban areas. (Of course, rising taxes, protests and crime prompt people to leave big cities, as well.)
Similarly, a second-quarter report from realtor.com, the property listing website, found urban residents of the country’s 100 largest metro areas viewed suburban properties 51 percent of the time when looking for a new home, an all-time high since it began tracking metro-level searches in 2017.
Fast-growing, mid-sized cities like Columbus, Ohio, are poised to gain. “If any more people come to Columbus I don’t know where we’re going to put them because Columbus is just blowing up. Everywhere you look there’s construction, there’s expansion,” said Lonnie Alonso, president of Columbus Pest Control.
11. Staffing is Going Universal.
Companies that trained technicians to be specialists in either residential or commercial pest control or termite work grappled with how to cover routes when employees got sick with COVID-19 or when exposure to the virus required 14-day quarantines.
This was especially troublesome since many companies have only a short seasonal window in which to generate the bulk of their revenue. Not having technicians work during this time had economic consequences for the entire year. As such, some companies are changing course when it comes to staffing.
“We are now thinking about staffing in a very different way than we used to in the past,” said El Damir, Adam’s Pest Control. The company is moving to “utility techs” who are “ready to go when needed” and can temporarily take on quarantined colleagues’ routes, he said.
This requires additional training and licensing, but the investment can pay off. Rose Pest Solutions has long trained technicians in both commercial and residential services. “That makes our techs a little bit more flexible” so they can fill in where needed, said Angie Persinger.
12. COVID is a Good Excuse to Make Hard Decisions.
For publicly traded pest control companies in particular, the pandemic was a gift to reorganize the business. “It’s clear to me that every one of these companies used the COVID situation to cull poor performers and rejigger a lot of things that are more difficult to do in normal business times,” said Paul Giannamore, The Potomac Group.
Cost containment measures at Rollins and ServiceMaster in the second quarter, for instance, included furloughs, layoffs, delaying merit raises and temporary salary reductions for upper management.
“People are using this definitely to get more efficient,” said PCO Bookkeepers’ Gordon. “If the economy really craps out, they’ll be in a good position but if it doesn’t, they’ll be making a ton of money,” he said.
Joe Finnerty of Colm Advisory urged PMPs to track financial data and key performance indicators in making strategic decisions. “Being complacent in how your business is run in this type of environment is going to be how people flounder and end up losing their business. You’ve got to improvise, adapt and overcome to keep up with the changing times,” he said.
The pandemic forced associations, regulatory agencies and pest control companies to embrace new technology. “I think it’s really going to push everybody to be a little bit more where we wanted to be yesterday,” said Dominique Stumpf, NPMA.