Shake up at ServiceMaster – not good news for the sale of pest control companies

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ServiceMaster, the owner of Terminix, has announced it is to explore strategic alternatives for its franchise ServiceMaster businesses. The reason behind this divestment is not good news for pest control companies looking to sell-up.
The news of this sell-off of ServiceMaster’s well known, largely franchised brands, was announced in a recent press release from the company dated 21 January 2020. These brands include ServiceMaster Restore, ServiceMaster Clean, Merry Maids, Furniture Medic and AmeriSpec.

The press release itself, as recorded below, paints a positive picture – as press releases should! However, in the copy of the regular newsletter produced by The Potomac Group (one of the industry’s leading mergers & acquisitions experts) a very different picture is painted. In the headline it declares.’… ServiceMaster hits the skids.’

Terminex Potomac Logo

The newsletter goes onto to explain that in late October 2019, ServiceMaster’s shares plunged c.20% based on the 2019 Quarter 3 preliminary results release – caused primarily, by unusually high termite damage claim settlements and lower profits from the fumigation business. In early November ServiceMaster’s shares rapidly plunging to its 52-week low, in all, losing approximately $3 billion in market value versus where it was trading prior to the preliminary release on 22 October 2019.

In the newsletter, Paul Giannamore goes on to explain: “The knock-on effect resulted in ServiceMaster pulling out of hundreds of millions of dollars in acquisitions, leaving sellers stranded in various stages of due diligence. The market supply of acquisition targets increased substantially, almost overnight…… excess supply rippled through the global pest control M&A market and put immediate downward pressure on marginal transaction multiples. The heads of global pest control companies in Atlanta (namely Orkin), London (Rentokil), and Stockholm (Anticimex) looked on in horror as a competitor began to implode in the public equity markets.”

These activities late in 2019 will have, undoubtedly, led to the release posted on 21 January. In it, it was announced that Nik Varty is to step down as chief executive officer and director and that current chairman, Naren Gursahaney, is named interim CEO.

Naren Gursahaney, said: “Our continued focus on maximising shareholder value has led us to the decision to explore strategic alternatives for our ServiceMaster Brands segment.

“Following a thorough review of our portfolio of businesses and the current strong valuations for businesses like ServiceMaster Brands, we determined the timing is right to explore strategic alternatives.

“We believe ServiceMaster shareholders would benefit from our Terminix business becoming a pure-play, global pest control company with enhanced management focus and resources. We expect that proceeds arising from a possible transaction would be used for debt reduction, prudent strategic growth opportunities and shareholder returns.”

News a shock
This news comes as something of a shock following the very upbeat interview Pest had with Dion Persson, the senior vice president of business development and international operations, as reported in Pest 66: December 2019 & January 2020.

Here the intention to concentrate on a global expansion of the Terminix pest control business was detailed.

Also in Pest 66: December 2019 & January 2020 was the article showing Terminix currently laying in third place in the global pest control market – a position it seemed, at the time, highly likely to better.

Lucky escape for creation of Terminix in the UK
As far as the UK goes, it would appear the recent acquisition by ServiceMaster of a significant part of the former Mitie pest control business had a lucky escape!

Terminix UK officially commenced operations on 4 December having worked its way through the procedures instigated by the Competitions & Markets Authority which accepted the undertakings proposed by Rentokil Initial for the divestment of the national accounts part of Mitie Pest Control Ltd to ServiceMaster. Word from the field is that the UK Terminix operation is very positively forging ahead.

Issue 66 Pp18 19 Issue 66 Pp21
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