We have received a lot of calls and emails over the last few days regarding Rollins’ acquisition of HomeTeam Pest Defense, including, do “Do you have a copy of the purchase agreement?” I’ve included in this week’s report the most commonly asked questions and answers.
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Last month our business valuation department was engaged by a pest control client, Kevin, owner of XYZ Pest Control, to advise him on setting up a stock gifting program. His goals are to gift stock annually to his children over the next 10 years or so, taking advantage of the Federal Annual Gift Tax exemption as a vehicle for saving for their college education. When we reviewed the financial and operational documents on XYZ, we realized that Kevin had made a few acquisitions over the last few years. XYZ’s most recent was the acquisition of a competitor - the purchase of the assets of an S corporation for $1,050,000. Upon digging into the numbers a little deeper, we realized something quite peculiarly, though not particularly surprising. The buyer and seller had allocated a very large portion of the purchase price, $480,000 to be exact, to a non-competition agreement. In this article, you are going to learn why this alarmed us and what you can do to avoid tax mistakes while doing deals.
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While low pricing may make you very competitive in your local market today, it’s going to clobber you when it comes time to sell your business.

Customer pricing is a very important consideration in the acquisition of a pest control company, and very little is said about it until it’s way too late to do anything. Are you a PCO who is focused on growing sales at all cost? Better listen up now, or start saving a bigger chunk of your paycheck for retirement… you’ll need it. (more…)

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.
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On January 24th, 2006, slightly more than three weeks into the New Year, one of the largest pest control companies in Europe, Rentokil Initial, announced its aggressive acquisition of J.C. Ehrlich Company, the 4th largest pest control company in the United States. The Reading, PA-based J.C. Ehrlich is the largest independently owned pest control company in the U.S. according to the PCT Top 100 list. While the pest control industry saw an active acquisition market in 2005, this year may prove to be stronger. A combination of various market forces has contributed to this consolidation: strong growth in industry demand, low capital gains tax rates, low cost of capital, and high valuations.

The Potomac Company (www.potomaccompany.com) is leading investment banking firm with a particular focus on the pest control industry. For a complimentary report on valuing and selling your pest control business, please send an email to pco@potomaccompany.com.