Home Page  |  Site Map  |  Articles 
Print This Post Print This Post     

Sunair: Exterminating Value?

Does it ever make sense to take stock instead of cash when selling your company? For as long as the public equity markets have existed, public companies have used their stock as currency to make acquisitions. While the days of all-stock deals (pooling of interest) have more or less vanished, there does seem to be at least one public company in the pest control industry that has been effective in convincing sellers to take its stock (along with cash) in return for their companies: Sunair Services Corporation. Because Sunair is a public company, we can look to the public equity markets as a barometer of what the investing public thinks of Middleton’s acquisitions.

As of the writing of this article, Sunair had a market capitalization of $35.8 million and an enterprise value of $49.2 million. What I found to be very interesting about this is that Sunair has spent a minimum of $71 million (and probably much closer to $85 million) since the summer of 2005 making acquisitions in the pest control industry. The chart below summarizes the publicly available data on Sunair’s pest control acquisitions since the acquisition of Middleton. As you can see, the stock market is currently valuing Sunair at $49.2 million, or about half of the $85 million it has paid on its dozen or so acquisitions over the last two years.

When the Middleton shareholders sold to Sunair in June of 2005, they received $35 million in cash, $5 million in a seller’s note, and $10 million in Sunair stock. On October 18, 2007, just a little over 2 years later, that $10 million in stock is now worth $2.8 million, a staggering loss of $7.2 million in value. Not only did Middleton get caught up in the decline, those who took stock in all of Sunair’s subsequent acquisitions felt the squeeze as well. Paragon’s stock has since lost half of its value, falling from $100,000 to $51,000; Ron Fee and Archer Exterminators have both lost about a third in the value of the stock that they received, provided that none of them have been able to bail out yet (I am not going to get into SEC holding requirements, talk to your lawyer about that one).

Sunair Transactions

The chart below illustrates Sunair’s performance versus the S&P 500 beginning on the day it acquired Middleton. For the first few months, the Company’s stock outperformed the index but beginning in September 2005 it entered free-fall and has continued ever since, losing 73% of its value.

My goal in writing this article was not to badmouth Sunair. I believe the Company has a very capable management team and Middleton is an excellent operation. It’s hard to manage Wall Street’s expectations, and if you miss your numbers, your stock takes a hit, Sunair is no exception. It’s been a tough environment for a lot of pest control operators this year, and I’ve seen it reflected in a lot of companies’ financial statements. Bottom line, a company’s stock can rise just as easily as it falls. When selling your business, you have to do your homework, whether the acquirer is public or private. If you are taking stock or holding seller paper, investigate the acquirer just as they will investigate you… ask for financial statements. If you know more about growing pest control companies than you do about pouring over financial statements and negotiating purchase agreements, make sure you engage a competent advisor who knows the industry – doing anything else is rolling the dice with your retirement fund.

Sunair Stock Chart

Interested in learning more about valuation and mergers & acquisitions in the pest control industry? The Potomac Pest Control Weekly is written one the most prominent business appraisers in the pest control industry and is packed with tutorials, case studies, and interviews with industry insiders. Fill in the form below to subscribe today

Phone Number:

Related Reading:
Buying a Pest Control Business
Rentokil / Ehrlich Acquires Mountain Pest Control
Selling Without Selling Out: An Interview with Waud Capital Partners
Sunair Services and George Costanza: Negotiating Hard for Less Money
Orkin Acquires Precision Pest Control and Bob’s Termite and Pest Services
Massey Withdraws Offer to Acquire Sunair Services
Massey Acquires Sunair… We’ll Know by Monday
Orkin Acquires Crane Pest Control
Terminix Acquires 19 Pest Control Companies in First Six Months of 2008
Ehrlich/Rentokil Acquires Shamrock Pest Management
Orkin Announces Acquisition of Five Pest Control Companies
The Orkin / HomeTeam Deal: A Closer Look at the Numbers
Rollins Acquires HomeTeam Pest Defense for $137 Million
The Rollins / HomeTeam Purchase Agreement
Copesan Announces the Addition of Two New Partners
Copesan Initiates Disengagement With J.C. Ehrlich/Rentokil and Presto-X
Potomac Announces Acquisition of Brazilian Pest Control Company
Losing $75K in 7 Seconds: Purchase Price Allocation 101
The Texas Pest Control Association Announced 2008 Election Results
Killing You Softly, Part 1 – Your Pricing
ISS Expanding Into Pest Control in Mexico
Paul Giannamore to Address the Texas Pest Control Association Convention
Extortion at Closing
Pest Control Acquisitions and Business Valuation for Pest Control Companies: Potomac Introduces the Potomac Pest Control Weekly
Orkin Acquires General Pest Control
Orkin Acquires Three New Pest Control Companies Across U.S.
Paul Giannamore to Speak at PCT M&A Seminar
Orkin / Western Acquires JRG Pest Control
Consolidation Continues in the Pest Control Industry
Kotler Pest & Termite Control Acquired by Terminix
Wind Point Partners Provides Acquisition Capital to Wilson Pest Control

Tags: , , , , ,

Leave a Reply

You must be logged in to post a comment.

  Home  |  Site Map © 1996-2011 The Potomac Company. All rights reserved. Legal  |  Contact Us  

Powered by Webucast