Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Pest Control Companies
Transcript
- Lucas: Luna, you had a mouse in your apartment last week. I remember the text. Luna: I did. And I learned something surprising: the guy who came to seal the holes wasn't a local exterminator. He worked for Orkin. And Orkin is owned by a company called Rollins—a publicly traded giant that's been on an absolute acquisition tear. Lucas: That is exactly the story. Private equity has been circling pest control for a decade, but the pace has accelerated. Rollins alone bought 17 regional pest control companies in 2025. Combined deal value north of $400 million. Luna: Seventeen? That's more than one a month. Lucas: Right. And they're not alone. Antares Capital, a private equity firm, rolled up PermaTreat and Moxie Pest Control into a single platform. Service Experts is doing the same on the HVAC side, but pest control has this quiet, sticky revenue model that PE firms love. Luna: Sticky how? I pay my guy once and don't see him again unless the mice come back. Lucas: That's the consumer side. But commercial pest control—restaurants, warehouses, hotels—signs annual contracts. And termite protection plans renew automatically. A termite bond is basically SaaS for bugs. Monthly recurring revenue, high retention, low churn. Luna: So PE sees a termite contract and thinks 'software subscription.' Lucas: Exactly. The pest control industry is about $22 billion in the US. About 60 percent is residential, but the commercial slice is growing faster. And the market is still fragmented—there are thousands of mom and pop operators. That's the opportunity. Luna: What's the typical deal look like? I imagine you're not buying a one-truck operation. Lucas: Generally you're looking at companies doing $2 million to $20 million in revenue. They have a solid reputation, a trained team, maybe 10 to 50 trucks. The buyer is paying 6 to 10 times EBITDA. For a well-run regional firm, that's a life-changing exit for the founder. Luna: And then what? The PE firm keeps the name, or rebrands everything under Orkin? Lucas: It depends. Rollins typically keeps the local brand—they're buying the customer relationships and the local trust. The founder often stays on as a regional manager for two or three years. That's key because pest control is a people business. The technicians are the product. Luna: But you can't just bolt on 17 companies and expect the culture to hold. I've seen that go wrong in other roll-ups. Lucas: It's the single biggest risk. Service consistency. If Orkin's national brand gets diluted by one bad acquisition, it hurts the whole network. Rollins has been disciplined—they only buy companies that use the same treatment protocols, same training standards. But as you scale, it gets harder. Luna: Let's talk numbers. Rollins reported Q1 2026 earnings in April. What did they show? Lucas: Organic revenue growth of 9.2 percent. That's impressive for a 120-year-old company. And their EBITDA margin was around 20 percent—healthy for a service business. But the acquisition spend is pulling down return on invested capital in the short term. Investors are watching that. Luna: So the market is saying, 'we like the growth, but show us you can integrate profitably.' Lucas: Exactly. And the multiples have crept up. A decade ago you could buy a pest control company for 5 times EBITDA. Now the good ones are going for 8 to 10. Some platform deals are pushing 12. That's getting expensive. Luna: Who's driving up the multiples? Lucas: Two forces. One is the strategic buyers like Rollins and Terminix—they have cost of capital advantages. The other is private equity firms raising dedicated service-industry funds. Antares, for example, closed a $1.2 billion fund in 2024 focused on home services. They need to deploy it. Luna: That creates an interesting dynamic: PE firms bidding against each other for the same targets, and the founders getting richer as a result. Lucas: Yes. And then there's the question of what happens when the acquisition pipeline dries up. If you've built a roll-up that only grows through M&A, you eventually run out of good targets. The winners will be the ones that actually improve operations post-acquisition. Luna: Give me an example of an operational improvement that makes a difference. Lucas: Route density. If you buy a company in Atlanta with 10 trucks, and you already have 30 trucks in Atlanta, you can consolidate dispatch, reduce fuel costs, and squeeze more stops per day. That directly drops to EBITDA. Rollins has been doing that for decades. Luna: So the play is: buy regional, centralize back office, optimize routes, and hold the local brand. That's the model. Lucas: It is. But there's a twist. Some PE firms are now buying not just the pest control company, but also the real estate the company operates from. They're separating the property from the business and selling it to a REIT. That's a whole other layer of financial engineering. Luna: That's aggressive. But I suppose if you can get 25 times earnings on the real estate and 8 times on the operating business, you're creating value that way. Lucas: Precisely. And that's why we're seeing more interest from funds that specialise in net-lease properties. They can underwrite the pest control contract as stable cash flow and justify a premium valuation. Luna: Let's zoom out. Is this consolidation good for the consumer? Lucas: Mixed. On the plus side, larger companies invest in training, technology, and insurance. The technician who showed up at your apartment had a tablet, a uniform, and a certification. That's better than some independent operators. Luna: But the downside is price creep. Once a market consolidates, there's less competition. You might see 5 to 10 percent price increases over a few years. Lucas: That's the concern. And service quality can slip if the centralised dispatch doesn't understand local pest patterns. A roach problem in Miami is different from a termite issue in Seattle. If you lose that local knowledge, you lose the trust. Luna: So what's next? Are we going to see a mega-merger between Rollins and Terminix? Lucas: That's the billion-dollar question. They've been the two largest players for years, but a combination would face serious antitrust scrutiny because together they'd control maybe 25 percent of the national market. But in some cities, they'd have 40 or 50 percent. The DOJ would not be happy. Luna: So instead they'll keep buying the independents. That seems like a slower but safer path. Lucas: It is. And Rollins has been doing it for 50 years. They're patient. They don't need to do one big deal when they can do 17 small ones. Luna: I hear you, and it makes me think about the role of independent analysis in all this. If these conversations have moved your work forward or given you a new lens on a deal, we want to keep them coming. This show is ad-free and listener-supported, and that's only possible because of people who chip in at buy me a coffee dot com slash fexingo. Lucas: It's a small gesture that funds the research time behind episodes like this. And we appreciate every one. Luna: Alright. Back to the bugs. Lucas, you mentioned that some PE firms are actually acquiring pest control software companies alongside the service firms. What's that about? Lucas: That's the next frontier. FieldRoutes, which makes scheduling and routing software for pest control companies, was bought by a pe backed platform in 2023. If you own the software that runs the industry, you have data on pricing, margins, and customer churn across thousands of operators. That's an intelligence advantage. Luna: So they're not just consolidating services—they're consolidating the tools that run the services. That's a bet on the industry's infrastructure. Lucas: Exactly. And it's harder to replicate than a truck with a sprayer. So the next wave of pest control consolidation might be about data and software, not just routes and trucks. Luna: Fascinating. I'll never look at my exterminator the same way again. Lucas: Neither will his new private equity owners.