Pest Control company valuation

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September 13, 2024

by a searcher from University of Alabama - Tuscaloosa in Birmingham, AL, USA

Imagine a pest control company in the southeast that has 425 properties and will book ~300K in revenue its first full year in business. Customers are in very strong zip codes.

Are you using a multiple of revenue or SDE to value this deal?

Thanks

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Reply by a searcher
from University of Texas at Austin in Fort Worth, TX, USA
Assuming it's your first, I would view it on profitability / SDE, but many sellers in the pest control space view it on a revenue basis (based on personal experience). I suspect that's because that is how larger roll ups have valued pest control companies in the past - which I think honestly make sense, especially for smaller would-be tuck-ins like this. If I am evaluating two businesses and they both have 425 customers paying $700 / year, revenue is a better anchor than profit when one owner has a office manager to do his bookkeeping and other miscellaneous tasks and one does one. One may have SDE of $150K and work all the time while the other has SDE of $90K but much more balance. Meanwhile, my profit from both would likely be closer to $120K (all theoretical here, of course).

At the same time, valuing off of SDE puts you in a position where you are telling the seller with SDE of $150K that his business is worth 1.2x SDE ($180K) when his buddy just sold his business that he knows is the exact same size for 2.0x SDE ($180K), and he feels ripped off. This is why I think pest control is unique where it makes sense to at least quote it in terms of revenue.

As far as how much to pay. I think the price (and quoted revenue multiple) should be impacted by earnings. Anywhere from 0.6x - 0.9x revenue at this size. May be able to get it for less if it's in a more rural area with fewer potential acquirers.

I try to give sellers multiple options with different structures. E.g. an option that is 0.6x but all cash at close, an option at 0.75x that's 50/50 and one that's 0.9x but 90% seller financed. I highly recommend this approach.
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Reply by an intermediary
in Knoxville, TN, USA
Having operated in pest control, I agree with the comments above that valuation should be based on SDE unless you are exclusively selling the contracts. If you are selling the contracts to Terminix, Aptive, or another big player, your valuation can be based on revenue (essentially a commission).
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