To gain some understanding of the logic behind international acquisitions, a suitable place to start is to consider the value of the worldwide pest control market. Estimates vary, but at service company level, the considered view is the global market is worth around $20 billion. The North American market alone accounts for around half of this, and if you add in Latin America, you reach nearly 60 percent. This leaves less than half for the rest of the world. Europe accounts for around 19 percent. (See graphic on page 36.) Not a massive target, but increasingly, large corporate customers that operate globally are seeking servicing companies they deal with at home whose services and standards they can utilize internationally. This includes food-processing and manufacturing companies, plus many hospitality chains, which now set their own global pest control protocols and desire to deal with one, or a limited number, of servicing companies globally.
EUROPEAN DIVERSITY. The first hurdle for any American company to overcome in Europe is one of language. There are 27 countries in the European Union (EU). So that’s 27 different languages to get to grips with, plus the variations in culture and ways of undertaking business. Add to this the UK. Yes, in the UK English is spoken, but there are still considerable variations in the vocabulary used in the pest management industry. Add to this the number of different currencies used and you start to understand some of the practical problems to be overcome.
Then, with all these countries comes regulatory differences — which products are available and how PMPs can use them varies considerably. The EU can add an active ingredient onto its list of approved substances, but it is then up to each Member State to assess each formulated product and determine how it is can be used in their country — hence the variation.
If this was not enough, the European professional pest control market, estimated to be worth around $4 billion, is itself highly fragmented. Precise data in Europe is virtually non-existent, but a survey undertaken by the Confederation of European Pest Management Associations (CEPA) estimated there were approximately 10,000 service companies with a workforce comprising around 40,000.
Of these 10,000 companies there is a very small number with large operations in numerous territories, primarily only Rentokil, Anticimex and, to a lesser extent, Ecolab. In each country there is then a limited number of mid-sized companies, many privately owned, which operate very much on a regional basis. After this there are literally thousands of small one- to five-man operations. It is estimated that 95 percent of servicing companies have less than 10 employees, with only 1 percent having more than 50.
It is difficult for any international business to establish an operation of any substantial scale if the only means of doing so is to buy a regionally based company with 10 to 30 technicians. It is therefore, the mid-sized companies that have become the target for acquisitions — as illustrated by the recent activities of Rollins (Orkin).
A MOVE INTO EUROPE. Rollins, operating as Orkin, once again tops the PCT Top 100 List and certainly holds the top spot of U.S. companies working towards a global position. That being said, the company has a long way to go to approach anywhere near the global coverage of Rentokil, which now operates in 81 countries and claims market leadership in 55.
With this global objective, Orkin established its first international franchise in 2000. By 2020, the number of international franchises has risen to 103, yet this accounts for less than 1 percent of total revenue. While the franchise model works well elsewhere in the world, its acceptance in Europe has been limited. So, in more recent years, there has been a change of direction as the company acquisition route has been developed.
Tom Luczynski, president of Orkin global development and international franchising explains, “The Orkin/Rollins expansion in Europe includes several Orkin-owned operations in the UK and franchises in Ireland, the Netherlands, France, Portugal, Romania, Georgia and Hungary. Our franchise expansion strategy is currently focused on Europe and also Asia.
“However, in more recent years, there has been a change of strategy as the company acquisition route has developed. For example, we have now established a firm foothold in the UK following our first acquisition, Safeguard Pest Control, in June 2016 with a further six acquisitions following on. In fact, in March 2020 we completed on two further acquisitions, namely Albany Environmental and Van Vynck Environmental. We are closer now to offering a nationwide service in the UK and we estimate we occupy a top five spot,” he said.
Second on the PCT Top 100 comes Terminix and they too have been stretching their wings internationally. In fact, by 2020 they are likely to have overtaken Orkin for non-U.S. derived revenue. In September 2019 they set foot in the European market following the acquisition of Nomor Holding AB, the Stockholm-based pest control company, followed by the national accounts sector of what was Mitie Pest Control Ltd from Rentokil in October 2019. These acquisitions, says ServiceMaster, will make them the fourth largest pest control company in Europe, while the $200 million Nomor acquisition will make them the second largest to Anticimex, in both Sweden and Norway, with a combined workforce of around 500.
The Mitie Pest Control acquisition was certainly hard work for ServiceMaster as this part was bought from Rentokil, which had attempted to acquire 100 percent of the Mitie pest portfolio (which formed a small part of the overall activities of this facilities management company). The total acquisition, however, was blocked by the UK’s Competitions & Market Authority which insisted, for reasons of anti-competitiveness, that part of the acquisition be divested. ServiceMaster’s efforts paid off, as in one stroke they acquired a ready-made business with more than 250 field-based staff able to provide national coverage to national accounts, unlike Orkin, which has had to buy six companies and has yet to achieve this level of coverage. In late 2019 the UK business was successfully rebranded and launched as Terminix and now holds the number three spot by size in the UK.
Unfortunately for ServiceMaster, their international acquisitions drive seems to have temporarily slowed. This follows the high termite damage claim settlements and lower profits from the fumigation business in the fall of 2019, the decline in the company’s share value and the announcement of the sale of their franchised brands.
Ranked in spot #4 in the PCT Top 100, Ecolab also has a presence within Europe. In France and the UK the company holds second place to market leader Rentokil, albeit around half the size based on technician numbers. Ironically, Ecolab established this position when in 2002 it acquired Terminix, which had been trading for some time in both France and the UK, but basically due to a shift in strategy, withdrew from the marketplace. Ecolab also operates, but to a lesser degree, in further countries such as Portugal, Spain, Italy and Poland. Compared with both Orkin and Terminix there appears to be a deafening silence from Ecolab regarding any merger and acquisition activity.
Finally, Truly Nolen. The familiar mouse cars are few and far between in Europe. While the company does have a presence in most European countries, this is very limited and local. As Orkin has discovered, the franchise business model has made little impact in the European pest control servicing sector.
Once the ravages of COVID-19 have passed, further international consolidation within the industry is forecast.