RKJ Partners presents our view of the pest control M&A market

1. Pest Control Industry
– M&A Review
JANUARY 2013
RKJ Partners, LLC is an
Atlanta, Georgia based I. OVERVIEW
investment banking firm
designed to specifically assist RKJ Partners, LLC (“RKJ”) noted continued momentum for M&A activity in the
lower middle-market growth pest control services industry. All indicators we are monitoring, combined with
companies in executing
transactions between $2MM proprietary feedback received from the market, strengthen our belief in the
to $75MM. fact that 2013 promises to be another active year for M&A activity. RKJ
believes the following attributes will contribute to the continued growth of
industry:
IN THIS ISSUE:
❖ As the US economy continues to recover, the housing market is recovering
Overview 1 as well. This alone should increase demand from homeowners for regular
inspections and treatments of termites and other pests.
2012 and 2013 YTD M&A Review 2
❖ Hotel and restaurant industry standards and regulations are creating
increased demand for pest control services. The recent uptick in bed bug
2013 M&A Outlook 3 outbreaks has further propelled the demand for professional services.
❖ The trend toward organic and environmentally friendly products means
About RKJ Partners, LLC 4
more opportunity for the pest control industry. Less toxic pest control
products stay in the environment for shorter periods when compared to
toxic products and require more frequent application. The shift to these
newer products will require commercial and residential customers to
request more visits from pest control companies.
❖ The HACCP, or Hazardous Analysis and Critical Control Point, is a program
CYRIL JONES put forth by the FDA to reduce food contamination. As a result, clients in
Managing Partner the food industry will require increased services from pest control
cyril@rkjpartners.com companies.
❖ Foreign ants have no natural predators. Their eradication depends on
organized pest control activity. Though the southern region of the US has a
GREGORY FICKLIN
large fire ant infestation, the fast breeding insects are adapting to colder
Managing Director
weather and becoming problems for crops, wildlife, and people in the
greg@rkjpartners.com
northern region of the US as well.
❖ Sophisticated technological developments have increased the accuracy of
finding termites, pests, or rodents and are becoming more and more
common in the pest control industry. Through the utilization of technology,
operators work more efficiently, thereby increasing operating margins.
❖ The US Small Business Administration (SBA) increased the small business
size standard for the pest control service industry from $7 million to $10
RKJ PARTNERS, LLC million. Small business size standards determine eligibility for small
4514 Chamblee Dunwoody Rd. business assistance and for federal contracts set aside for small business.
Suite 170 Therefore, more operators will have the ability to bid for federal contracts.
Atlanta, Georgia 30338
p. 404.963.8592
f. 404.920.2159
www.rkjpartners.com
om

2. II. 2012 AND 2013 YEAR TO DATE M&A REVIEW
Although there are several very large operators in the pest control industry (Terminix, Orkin, Rentokil), a significant
portion of the industry continues to be populated by regional operators and “mom and pop” operators. As evidenced
by the exhibit presented below, large operators continue to fuel a portion of its growth initiatives via multiple strategic
acquisitions. The significant upswing in completed transactions was fueled not only by the consolidation efforts of the
largest industry players, but also by smaller, regional players and financial buyers as well.
Closed Date Buyer Target Deal Size ($ m illions)
01/09/13 Terminix McCauley Brothers Termite and Pest Services NA
01/03/13 Hoffman Exterminating Luvin' Bugs Termite and Pest Control NA
12/13/12 Knockout Pest Control Q Exterminators NA
12/10/12 Rentokil Initial plc Eden Advanced Pest Technologies, Inc. 10.0
12/05/12 Sprague Pest Solutions Golden Services NA
11/29/12 Arrow Exterminators, Inc. Terminator Pest Control NA
11/21/12 Arrow Exterminators, Inc. Can Eliminate Pest Control NA
11/09/12 Arrow Exterminators, Inc. Norton Exterminating NA
11/02/12 Massey Services GreenFrog Services NA
10/23/12 Rollins, Inc (Orkin Brand) Partner's Pest Control of the Valley NA
10/05/12 Rentokil Initial plc Maykar Pest Control NA
10/03/12 Rollins, Inc (Orkin Brand) Hulett Environmental Services (Central FL) NA
10/02/12 ChemTec Pest Control Thomas Pest Control Company NA
09/25/12 Rollins, Inc (Orkin Brand) Tri-County Pest Control South NA
09/25/12 Rentokil Initial plc Western Exterminators 114.6
09/22/12 Dodson Pest Control Scott's Pest Control NA
08/31/12 Massey Services Myer's Services of Texas NA
08/29/12 Arrow Exterminators, Inc. W.H. Wilson Termite & Pest Service NA
08/06/12 Rentokil Initial plc Modus FM 5.3
07/31/12 Terminix Schendel Pest Services NA
07/17/12 Arrow Exterminators, Inc. The Pest Terminator NA
07/03/12 Arrow Exterminators, Inc. Spencer Pest Services of North Charleston NA
06/13/12 Arrow Exterminators, Inc. Al Hoffer's Termite, Pest & Law n NA
05/30/12 Rollins, Inc (Orkin Brand) Big Deal Exterminating of Puerto Rico NA
05/16/12 Rollins, Inc (Orkin Brand) Evins Pest Control NA
04/03/12 EQT VI (Financial Buyer) Anticimex Group NA
03/31/12 Senske Pest Control Guardian Pest Defense NA
02/15/12 Rollins, Inc (Orkin Brand) Craig Thomas Pest Control NA
02/07/12 Arrow Exterminators, Inc. Spencer Pest Services NA
02/05/12 Arrow Environmental Services Ant-Ser Termite & Pest Control NA
In assessing deal activity for the pest control industry, RKJ has identified some key themes as catalysts for this buying
trend, which include:
Recession Resistant Industry
In good economic times and in bad economic times, clients keep calling because pest control isn’t a luxury — it is a
necessity. This fact alone makes pest control an industry that is highly attractive to suitors from the outside that
are looking to buy a business, and pest control veterans who want to expand their operations. Pest control
appears to be a smart investment choice even when Wall Street looks like a deserted alley. And, in the M&A
world, pest control is a solid, proven investment.
Acquisitions Remain Material Aspect of Operators Growth Strategy
One reason industry specific M&A did not completely slow down during the recent economic downturn is because
acquisitions are part of the growth plan for strong companies. They need new customers to fuel that growth and
one way to get them is through acquisition. Factors such as access to capital and taxes are possibly driving more
2 RKJ PARTNERS, LLC: PEST CONTROL INDUSTRY - M&A REVIEW

3. sellers to the table these days. Money is relatively cheap. Interest rates have reached historical lows. The pest
control industry is comprised of thousands of companies moving slowly toward more consolidation. Qualified
buyers are going to continue to seek out acquisition opportunities to increase market share, improve efficiency
and add experienced management.
Continued Interest from Industry “Neophytes”
A big difference in pest control M&A today when compared to a few years ago is the number of buyers from
outside the industry. Approximately sixteen percent of transactions completed between 2009 and 2012 involved
buyers that were new to the pest control industry.
III. 2013 M&A OUTLOOK
As the baby boomers continue to exit their businesses at a rapid pace, opportunistic, cash-rich acquirers will continue
to be in a position to seize opportunity. Quality sellers in the pest control industry should continue to see favorable
valuations over the near-term and not-so-quality sellers will see less exit opportunities as the months’ progress.
For buyers, what makes one company attractive when compared to another company? A number of factors play into
a pest control firm’s value to a buyer, and the more information a company can provide potential buyers, the better.
Aside from profitability and a sound balance sheet, here is a roundup of qualities buyers seek in a pest control
business for sale.
❖ Recurring revenues: Contracts with long-time customers and proof of service and payment;
❖ Strong management: Leaders with a track record;
❖ Committed employees: Skilled, loyal technicians;
❖ Reputation: A good name in the service area and industry;
❖ Company culture: Sharing the same fundamental values;
❖ Customer relationships: Strong ties with customers who renew year after year;
❖ Service mix: Offering services that are new to the buyer;
❖ Geography: Located in the same service area (buyers want to increase market density) or in another
territory/state (buyers want to expand their footprint).
RKJ’s predicts M&A activity in the pest control industry will continue at a healthy pace throughout 2013. As
consistent with the views presented in our 2012 report, we continue to believe the following fundamentals will
support continued deal flow for the remainder of the year:
❖ Highly fragmented industry with thousands of companies moving toward consolidation
❖ Well-capitalized national and regional players with a strong desire to diversify their customer base while
establishing themselves as the “acquirer of choice”
❖ Cheap money (i.e. low interest rates) is decreasing the cost of capital, which is supporting an increased level of
M&A activity and business valuations in general
❖ Anticipated rise in bed bug customer base due to increasing public infestations
3 RKJ PARTNERS, LLC: PEST CONTROL INDUSTRY - M&A REVIEW

4. In the pest control industry, M&A activity is largely driven by life events. The great majority of pest control operators do
not “time the market” to get the best possible acquisition multiple for the sale of their businesses. Pest control
operators sell their businesses for personal reasons, such as death, divorce, burnout, illness, retirement, etc. Sale
decisions for life events can be deferred in troubled times, but they cannot be avoided altogether, and we believe that
pest control operators will seize the opportunity in 2013 to sell when the M&A market is still relatively strong.
4 RKJ PARTNERS, LLC: PEST CONTROL INDUSTRY - M&A REVIEW

5. ABOUT RKJ PARTNERS, LLC
RKJ is an established advisor to leading lower middle-market growth companies. We provide our clients with
experienced-based solutions and unbiased advice. Our comprehensive array of strategic advisory and execution
capabilities allows us to meet the needs of our clients and provide an outstanding level of service in connection with a
variety of transaction processes, including:
❖ CAPITAL ADVISORY: RKJ possesses substantial expertise in assisting lower middle-market clients raise capital to
fund growth strategies. Whether the capital source is senior debt, mezzanine/subordinated debt, private equity,
or venture capital, RKJ has both extensive and relevant relationships within the capital community to enable the
deployment of optimal solutions for our clients.
❖ MERGERS & ACQUISITIONS: RKJ serves as a trusted advisor in executing merger and acquisition transactions for
lower middle-market clients. In addition to our significant investment banking transactional experience, RKJ’s
bankers have owned businesses and have served in interim CFO roles for clients. As a result of our experiences
as business owners and senior level managers, RKJ’s bankers are able to bring a unique perspective to the
mergers and acquisitions process. RKJ’s mergers and acquisitions services include:
 Buy-side and Sell-side Advisory
 Divestitures
 Leveraged & Management Buyouts
❖ STRATEGIC ADVISORY: RKJ provides financial advisory services to owners, management, shareholders and their
boards to assist in the evaluation strategic alternatives and options for extending and/or maximizing shareholder
value. RKJ’s advisory services include:
 Business Valuations
 Capital Structuring & Planning
 Negotiating Joint Ventures
 Strategic Business Development
5 RKJ PARTNERS, LLC: PEST CONTROL INDUSTRY - M&A REVIEW