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Ask the Advisor: Getting Ripped Off By Pest Control Business Brokers

Posted By admin On March 26, 2012 @ 8:09 pm In Articles, Blog, Pest Control | No Comments

Watch our latest webinar: [1] Pest Control Valuation and M&A 101: Valuing a Pest Control Company

Question: I called a business broker who handles pest control companies and he said the buyer will pay his fee. How can he represent me, but get paid by the buyer?
 Jeff (from Florida)

Answer: The short answer is: he can’t. The reality is, he will be representing neither you nor the acquirer in the transaction. He will be representing his own interests and will be selling your business to the buyer who is willing to pay him the most. Not a good situation to find yourself in if you are selling your life’s work.

 Brokers who act as finders provide absolutely no value whatsoever to a seller. In fact, in a lot of ways, they cost a seller a tremendous amount of money.

Here’s why:



He’ll Exclude All Buyers Who Won’t Pay Him

Since the buyer is actually writing him the check, he’ll only show your business to acquirers who are willing to pay him, excluding the low payers and no payers of his fees. Most finders in the pest control industry end up selling the business to one of two acquirers, the two most likely to pay him a finders fee. Because most of these brokers have no training whatsoever in accounting, finance, law, tax or valuation, and lack any real deal making experience, you would be better off having your 15 year-old-nephew call up the acquirer and ask for a finder fee for presenting your company, at least you’ll keep the money in the family.



A Rose by Any Other Name….

Just because someone tells you that the buyer is paying their fee, doesn’t mean that’s the case. The money comes from somewhere, and 99% of the time, the buyer subtracts the broker’s fee from the proceeds that they are willing to pay to the seller. So by working with one of these brokers, not only have you excluded a massive portion of the buyer universe from your sale, you’ve also written him a check, by allowing the acquirer to subtract that from the deal, for doing absolutely nothing for you and representing the buyer’s interest. Let’s face it, if the buyer doesn’t do the deal, this guy won’t get paid. And since he’s dealing with a very small acquisition universe, he is going to do everything in his power to get that deal done whether it benefits you or not. Oh, and by the way, since he never signed a contract with you, he has no fiduciary duty to represent your interests, so you’ll never be able to sue him after he rips you off.

There are certainly instances when advisors work on the buy-side and they are paid by an acquirer to find acquisition targets and execute the deal. Any time anyone comes to you and says the buyer will pay my fee, make sure he is up front with you about who the buyer is and he is a RETAINED buy-side advisor, not a finder.

 Remember, there is no such thing as a free lunch. When YOU HIRE a broker who is being paid by the acquirer, you need to understand that he is not representing you and for every deal, there is a finite pool of cash to go around. The fees have to come from somewhere, and most likely they are coming from you, disguised as a buy-side fee. So if you are going to pay some knuckle-head to put together a deal for you, you might as well pay a competent M&A professional, who is an expert in valuation, deal structuring and the legal and tax implications of a transaction, who will relentless represent your interests through a competitive process. By doing anything else, you’ll get what you pay for, and in this case, you’ll be paying to get fleeced by a broker and his buyer.

Give us a call today at 215-525-0689 to talk to an M&A advisor with expertise in the pest control industry.

Interested in learning more about valuation and mergers & acquisitions in the pest control industry? Subscribe to Potomac Company commentary and research on the Pest Control Industry.


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[2] Rentokil Acquires Western Exterminator
[3] Massey Services Acquires Myers Services
[4] Terminix Acquires Schendel Pest Services
[5] Getting Ripped Off by Pest Control Business Brokers
[6] Terminix Acquires EcoFirst Pest Control, a PCT Top 100 Company
[7] Selling Without Selling Out: An Interview with Waud Capital Partners
[8] Sunair Services and George Costanza: Negotiating Hard for Less Money
[9] Orkin Acquires Precision Pest Control and Bob’s Termite and Pest Services
[10] Massey Withdraws Offer to Acquire Sunair Services
[11] Massey Acquires Sunair… We’ll Know by Monday
[12] Orkin Acquires Crane Pest Control
[13] Terminix Acquires 19 Pest Control Companies in First Six Months of 2008
[14] Ehrlich/Rentokil Acquires Shamrock Pest Management
[15] Orkin Announces Acquisition of Five Pest Control Companies
[16] The Orkin / HomeTeam Deal: A Closer Look at the Numbers
[17] Rollins Acquires HomeTeam Pest Defense for $137 Million
[18] The Rollins / HomeTeam Purchase Agreement
[19] Copesan Announces the Addition of Two New Partners
[20] Copesan Initiates Disengagement With J.C. Ehrlich/Rentokil and Presto-X
[21] Potomac Announces Acquisition of Brazilian Pest Control Company
[22] Losing $75K in 7 Seconds: Purchase Price Allocation 101
[23] The Texas Pest Control Association Announced 2008 Election Results
[24] Killing You Softly, Part 1 – Your Pricing
[25] ISS Expanding Into Pest Control in Mexico
[26] Paul Giannamore to Address the Texas Pest Control Association Convention
[27] Sunair: Exterminating Value?
[28] Extortion at Closing
[29] Pest Control Acquisitions and Business Valuation for Pest Control Companies: Potomac Introduces the Potomac Pest Control Weekly
[30] Orkin Acquires General Pest Control
[31] Orkin Acquires Three New Pest Control Companies Across U.S.
[32] Paul Giannamore to Speak at PCT M&A Seminar
[33] Orkin / Western Acquires JRG Pest Control


Article printed from The Potomac Company - Mergers & Acquisitions, Valuations and Corporate Development: http://www.potomaccompany.com

URL to article: http://www.potomaccompany.com/2012/03/26/ask-the-advisor-getting-ripped-off-by-pest-control-business-brokers/

URLs in this post:
[1] Pest Control Valuation and M&A 101: Valuing a Pest Control Company: http://www.potomacpestcontrol.com/pest-control-valuation-ma-101-webinar-replay-2/
[2] Rentokil Acquires Western Exterminator: http://www.potomaccompany.com/2012/09/25/rentokil-acquires-western-exterminator/
[3] Massey Services Acquires Myers Services: http://www.potomaccompany.com/2012/08/31/massey-services-acquires-myers-services-of-texas/
[4] Terminix Acquires Schendel Pest Services: http://www.potomaccompany.com/2012/07/31/terminix-acquires-schendel-pest-services/
[5] Getting Ripped Off by Pest Control Business Brokers: http://www.potomaccompany.com/2012/03/26/ask-the-advisor-getting-ripped-off-by-pest-control-business
-brokers/

[6] Terminix Acquires EcoFirst Pest Control, a PCT Top 100 Company: http://www.potomaccompany.com/2011/11/01/terminix-acquires-ecofirst-pest-control-a-pct-top-100-compa
ny/

[7] Selling Without Selling Out: An Interview with Waud Capital Partners: http://www.potomaccompany.com/2009/10/25/selling-without-selling-out-an-interview-with-waud-capital-
partners/

[8] Sunair Services and George Costanza: Negotiating Hard for Less Money: http://www.potomaccompany.com/2009/10/12/sunair-services-and-george-constanza-negotiating-hard-for-l
ess-money/

[9] Orkin Acquires Precision Pest Control and Bob’s Termite and Pest Services: http://www.potomaccompany.com/2009/02/04/orkin-acquires-precision-pest-control-and-bob%E2%80%99s-ter
mite-and-pest-services/

[10] Massey Withdraws Offer to Acquire Sunair Services: http://www.potomaccompany.com/2009/01/27/massey-withdraws-offer-to-acquire-sunair-services/
[11] Massey Acquires Sunair… We’ll Know by Monday: http://www.potomaccompany.com/2009/01/21/massey-acquires-sunair-well-know-by-monday/
[12] Orkin Acquires Crane Pest Control: http://www.potomaccompany.com/2009/01/06/orkin-acquires-crane-pest-control/
[13] Terminix Acquires 19 Pest Control Companies in First Six Months of 2008: http://www.potomaccompany.com/2008/12/01/terminix-acquires-19-pest-control-companies-in-first-six-mo
nths-of-2008/

[14] Ehrlich/Rentokil Acquires Shamrock Pest Management: http://www.potomaccompany.com/2008/08/09/ehrlichrentokil-acquires-shamrock-pest-management/
[15] Orkin Announces Acquisition of Five Pest Control Companies: http://www.potomaccompany.com/2008/05/13/orkin-announces-acquisition-of-five-pest-control-companies/
[16] The Orkin / HomeTeam Deal: A Closer Look at the Numbers: http://www.potomaccompany.com/2008/04/22/the-orkin-hometeam-deal-a-closer-look-at-the-numbers/
[17] Rollins Acquires HomeTeam Pest Defense for $137 Million: http://www.potomaccompany.com/2008/03/31/rollins-acquires-hometeam-pest-defense-for-137-million/
[18] The Rollins / HomeTeam Purchase Agreement: http://www.potomaccompany.com/2008/04/16/the-rollins-hometeam-purchase-agreement/
[19] Copesan Announces the Addition of Two New Partners: http://www.potomaccompany.com/2008/03/27/copesan-announces-the-addition-of-two-new-partners/
[20] Copesan Initiates Disengagement With J.C. Ehrlich/Rentokil and Presto-X: http://www.potomaccompany.com/2008/01/15/copesan-initiates-disengagement-with-jc-ehrlichrentokil-and
-presto-x/

[21] Potomac Announces Acquisition of Brazilian Pest Control Company: http://www.potomaccompany.com/2007/12/11/potomac-announces-acquisition-of-brazilian-pest-control-com
pany/

[22] Losing $75K in 7 Seconds: Purchase Price Allocation 101: http://www.potomaccompany.com/2007/11/19/losing-75k-in-7-seconds-purchase-price-allocation-101/
[23] The Texas Pest Control Association Announced 2008 Election Results: http://www.potomaccompany.com/2007/11/19/the-texas-pest-control-association-announced-2008-election-
results/

[24] Killing You Softly, Part 1 – Your Pricing: http://www.potomaccompany.com/2007/11/15/killing-you-softly-part-1-%E2%80%93-your-pricing/
[25] ISS Expanding Into Pest Control in Mexico: http://www.potomaccompany.com/2007/11/11/iss-expanding-into-pest-control-in-mexico/
[26] Paul Giannamore to Address the Texas Pest Control Association Convention: http://www.potomaccompany.com/2007/11/09/paul-giannamore-to-address-the-texas-pest-control-associati
on-convention/

[27] Sunair: Exterminating Value?: http://www.potomaccompany.com/2007/10/18/sunair-exterminating-value/
[28] Extortion at Closing: http://www.potomaccompany.com/2007/10/16/extortion-at-closing/
[29] Pest Control Acquisitions and Business Valuation for Pest Control Companies: Potomac Introduces the Potomac Pest Control Weekly: http://www.potomaccompany.com/2007/05/07/potomac-introduces-the-potomac-pest-control-weekly/
[30] Orkin Acquires General Pest Control: http://www.potomaccompany.com/2007/02/01/orkin-acquires-general-pest-control/
[31] Orkin Acquires Three New Pest Control Companies Across U.S.: http://www.potomaccompany.com/2007/01/10/orkin-acquires-three-new-pest-control-companies-across-us/
[32] Paul Giannamore to Speak at PCT M&A Seminar: http://www.potomaccompany.com/2006/12/06/managing-director-paul-giannamore-to-speak-at-pct-ma-semina
r/

[33] Orkin / Western Acquires JRG Pest Control: http://www.potomaccompany.com/2006/12/01/orkin-western-acquires-jrg-pest-control/

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