Our First Acquisition

All the details on our acquisition of Independent Pest Control

Author

Casey McDaniel
October 25, 2024

To begin, I apologize that this is a day late. I lost track of time this week and didn’t get it scheduled for Thursday. Here we are. Here it is.

Last fall, my business partner and I were looking for growth opportunities and deciding if we should stay a one location company for one more year or try to expand to two. We did a lot of market research and found a few markets we really liked. We also started looking for some opportunities closer to home.

Our first location was Grand Junction, CO. We identified Pueblo, CO as a potential new market. It’s not a premier area in Colorado by any means. Generally overlooked. It’s about 6 hours away by car and just as far by plane because both towns are small markets with small airports.

In February, I was perusing bizbuysell like usual and I saw an interesting opportunity pop up in Colorado Springs just 45 minutes north of Pueblo and 45 minutes south of Denver. We hit up the broker, signed an LOI, and submitted an offer. 5 months later we closed. So let’s do a deep dive on the numbers and negotations.

Fundamentals

2023 revenue $440k

2023 SDE $200k

3 employees plus the owner and his wife. No vehicles, minimal equipment, only $360k of the revenue was “recurring.”

Asking price $500k

About 700 recurring customers.

Negotiations

We quickly looked over the numbers and submitted an offer of $445k.

They countered at $475k and we shook hands.

That’s a multiple of:

1.08 x revenue

1.32 x recurring revenue

2.375 x SDE

Structure

$0 down - yes that’s right

$50k seller financing. First two years on standby then payments amortized over 5 years at 10% interest. Since there are no payments for 2 years, the banks counted this as our equity injection and allowed us to put $0 down.

$425k SBA loan at prime plus 2.5%. They also gave us another $80k as working capital but we decided we don’t need it and paid it back already to knock the loan balance down.

The Good, Bad, and Ugly

The sellers took forever to get documents in. They didn’t have clean, year end financials to us until mid April. They had unpaid taxes that they didn’t know about until a lien search came back in June which delayed closing until Mid July. They had been doing termite treatments for 15 years without licensing. The owner and his wife were far more involved than they had told us. Not a big deal. We expected as much but it made us chuckle.

They priced all of their services well below market rate. They were so inefficient they left money on the table all day every day and they still cleared $200k in 2023. Because they were such a poor operation all of their customers seem to just stick around and the changes we have made have already solidified a lot of customers loyalty to us.

What We’ve Done Since Closing

  • We immediately let the office person go because she lived in Springs and our office is Junction

  • Bought 4 new Ford Mavericks

  • Bought all new equipment

  • Switched off their terrible CRM system and got everyone into the system we use

  • Started racking up reviews and getting cards on file

  • Started providing a much higher quality service.

  • Sent out a single door to door rep to start adding sales and build route density

Honestly, it has been incredibly stressful getting everything set up and getting everyone to buy in to our systems and processes. As of late, things have been humming along smoothly.

Where We Are Now

We have grown from 700 customers to 850 at this location in the last 3 months.

Recurring revenue from $360k → $400k

Total revenue has gone from $35k a month to $45k a month during that same time.

We let go all of the techs because they were unlicensed, providing a low quality service, and not willing to change. We hired three new techs that are absolute rockstars.

The few customers we did lose during the transition have been replaced with higher quality and higher paying customers.

Looking Forward

We plan to have a big door to door team out there next year. Route density is among the most important factors in profit margins in this industry. If you are looking for a sales job and want to learn the industry next summer, send me an email.

We plan to add roughly 1500 accounts in the area next summer.

We will turn on the marketing faucet and pour some serious money into ads.

We hope to get up to around 5 technicians in that branch and promote one of them to branch manager to take some of the load off of our shoulders.

We also look forward to growth in our first branch which has allowed us to finance this entire operation, pour capital into growth, and stay profitable while doing so.

News in the industry: King Pest Acquires IPC

You can read about the acquisition here!

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