TIDMRTO
RNS Number : 5824X
Rentokil Initial PLC
01 September 2015
1 September 2015
ACQUISITION OF STERITECH GROUP INC.
Catalyst for driving accelerated growth and significantly
enhanced margins in North America
Rentokil Initial plc (FTSE: RTO, "the Company") today announces
the agreement to acquire The Steritech Group, Inc. ("Steritech") -
one of the leading pest control businesses in North America,
operating in both the United States of America and Canada - further
accelerating the growth of its pest control business.
Highlights
-- The Company has agreed to acquire Steritech for $425m in
cash, subject to US regulatory approval.
-- Steritech is a high quality provider of pest control services
with a US national footprint. It is also the market leading
provider of brand standards auditing services in North America.
-- The acquisition strengthens our position as the number three
pest control business in the US, a c$7.5bn market which accounts
for c50% of global pest control services and is a key strategic
market in our Growth quadrant.
-- Rentokil also becomes the third largest pest control company
in Canada, creating a competitive national business, twice the size
of its current Canadian operations.
-- The Company's North American business now has annual revenues
of c$0.8bn and becomes its largest operation.
-- Steritech provides a highly complementary geographic fit -
building route density and scale in line with the Company's
strategy for profitable growth.
-- The brand standards auditing business provides a new
dimension to Rentokil Initial's pest and hygiene services with
potential for global leverage.
-- Steritech has a well-deserved reputation for market leading
quality standards and technical know-how. The Company sees a strong
cultural fit with emphasis on customer care as evidenced by high
levels of customer retention.
-- Strong financial case based on year three cost synergies
estimated to be at least $25m and good revenue synergies.
-- The transaction is expected to deliver profit before
interest, tax and amortisation ("EBITA"(1) ) of $25m - $30m in 2016
and to achieve EBITA returns in excess of 12% by 2018.
Andy Ransom, Chief Executive of Rentokil Initial plc, commented:
"For some time we have been pursuing a growth strategy in North
America, the world's largest pest control market, with Steritech at
the top of our target list. It has an outstanding management team
with a proven track record and a reputation founded on technical
expertise and a premium service, similar to ours. It is also highly
geographically complementary to our existing US business.
"This is a rare opportunity to acquire a high-quality business
with national scale in this key target growth market. The deal is
in line with our growth strategy and will be transformational for
Rentokil in North America, providing us with the opportunity to
further accelerate our revenue growth and significantly enhance
margins."
Rich Ennis, CEO of Steritech, commented: "Steritech's success
has largely been based on great people delivering world class
service to customers. Rentokil's strong culture and focus on people
make them the perfect fit for Steritech's people and customers. I
believe that the future is bright for the new organization."
Steritech Overview
Steritech, which is headquartered in Charlotte, North Carolina,
was established in 1986 and is one of the leading pest control
businesses in North America. Steritech is engaged in commercial
pest control (approximately $97m of revenue) and brand standards
auditing (approximately $53m). It has a high quality management
team with particular strengths in national and large account sales.
We plan to retain all key Steritech management in the combined
business.
In addition to its core pest control operations, Steritech is
North America's market leader for brand standards auditing to the
restaurant and food retail industries. This service is delivered
through onsite audits covering food safety, operational excellence
and quality of customer service.
Brand standards auditing is an attractive additional business
line which has similar customer segments to pest control. These
services are delivered by highly trained consultant auditors who
help customers to deliver consistently on their brand promises by
providing a third party monitoring mechanism. This evaluates
whether their food preparation, food delivery and customer
experience criteria are being met. Further, these audits identify
where corrective action is required. The brand standards business
has grown organically by a compound annual growth rate ("CAGR") of
c14% since 2013. Rentokil does not currently service this market
(currently worth $325m p.a. in North America), and so the
acquisition of Steritech provides the Company with access to a
relatively under-developed market with high growth potential both
in North America and eventually internationally through leverage of
Steritech's North American relationships and Rentokil's
international footprint.
The brand standards and pest control businesses are highly
complementary providing significant opportunities for increased
lead generation across the combined business.
Financial Performance
Steritech has a strong track record of revenue growth and
customer retention with revenues growing by a CAGR of 10% since
2013.
Steritech's reported EBITA in the year ended March 2015 was
c$10m. Based on pro forma adjustments the Company estimates
underlying(2) EBITA for the year ended March 2015 to be c$15m.
Rentokil expects to be able to increase EBITA to over $50m by 2018
through cost synergies of at least $25m including back office and
operational cost savings across Rentokil Initial's combined North
American business with the remainder of profit growth through
revenue growth and synergies. Steritech operates on an
"asset-light" basis with gross assets at 31 March 2015 amounting to
c$38m.
Significant Opportunity to Accelerate Growth and Margins
Rentokil Initial has been pursuing a strategy of growth in the
highly attractive North American pest control market for several
years. The Company's pest control business in North America has
grown by a CAGR of c15% since 2006 through both strong organic
growth and acquisitions. The acquisition of Steritech provides an
excellent opportunity for accelerated revenue growth in our North
American business organically and through synergies including
national accounts sales, increased jobbing work and the provision
of new services to existing customers.
The acquisition increases our scale in North America, creating a
business which, combined with the recent acquisition of Anderson
Pest Solutions in Chicago (announced on 28 August 2015), now has
annual revenues of c$0.8bn. This will help the Company in its
ambition to achieve significantly enhanced margins through leverage
of head office costs, reductions in branch level operational
administration, better procurement terms, increased route density,
improved service technician productivity and field management span
of control. The strong geographical fit enables the Company to
infill existing low density states in North Carolina and South
Carolina, as well as build density in the West, Midwest and
Northeast.
Transaction Overview
The transaction will be financed through existing cash resources
and a new debt facility which provides the Company with the
opportunity to borrow up to GBP300m, maturing in 2018, at an
interest rate of c1.5%, resulting in interest costs relating to
this transaction of cGBP4m in 2016. The transaction is expected to
close in the fourth quarter of 2015 upon satisfaction of certain
customary conditions, including Hart-Scott-Rodino anti-trust
clearance.
(1) EBITA has been calculated before transaction costs and
one-off integration costs.
(2) Underlying EBITA has been calculated after adjusting for the
impact of non-recurring or non-operating items including one-off IT
costs, non-cash write-offs and ownership costs.
--ENDS--
Conference call for investors and analysts
A conference call for investors and analysts will be held at
0830hrs (BST-UK) on Tuesday 1 September 2015.
Participant Access telephone numbers
UK: +44(0)20 3427 1905
France: +33(0)1 76 77 22 26
Hong Kong: +852 3068 9885
USA: +1 212 444 0895
Participant PIN code: 4437876#
Playback Details (available for
14 days):
UK: +44(0)203 427 0598
France: +33(0)1 74 20 28 00
Hong Kong: +852 3011 4669
USA: +1 347 366 9565
Playback PIN code: 4437876#
Enquiries:
Investor / Analyst enquiries:
Katharine Rycroft, Investor Relations,
Rentokil Initial plc 07811 270 734
Media enquiries:
Malcolm Padley, Corporate Communications,
Rentokil Initial plc 07788 978 199
Ben Woodford, Bell Pottinger 0203 772 2549
Notes to Editors:
About Rentokil Initial plc
Rentokil Initial is one of the largest business services
companies in the world, operating in over 60 countries. The Company
offers route-based services including Pest Control, Hygiene and
Workwear through teams of local experts.
In the first six months of 2015, the North American Region
delivered revenue +8.3%, with strong profit growth of +19.5% driven
by acquisitions and leverage impact from higher revenues.
www.rentokil-initial.com
www.steritech.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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September 01, 2015 02:03 ET (06:03 GMT)
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