Rentokil/Terminix: ratcatcher sees chance of a killing in $6.7bn US deal


Old-fashioned exterminators have impressed rodent customers with the “King of Rats” who ties rodents with their tails to create superorganisms. Rentokil, the UK’s largest termite and other pest terminator, is also in the pay $ 6.7 billion in cash and stock to help Terminalix in the US become a global leader in the $ 22 billion pest control industry.

Cross-Atlantic transactions usually feature UK companies as targets, reflecting a relatively low rating. Still, Rentokil is a natural buyer. Under the boss Andy Ransom, a graduate of the manufacturing industry’s deep-rooted ICI, he has launched more than 220 companies.

Shareholders have been well rewarded. Over the last five years, our market share has almost tripled. The return on the FTSE 100, which is a component of Rentokil, has been one-fifth over the past year.

The group, now worth more than £ 10 billion, could exceed the valuations achieved before the 2000 market crash. Not bad for a business founded a century ago by Boffin, who was devoted to saving the beam of the Palace of Westminster from the Deathwatch beetle.

The transaction will generate an additional $ 1.9 billion in revenue, nearly half of Rentokil’s sales. Market forecasts will tilt the group further towards the United States, growing about 4.5-5% annually.

A price of $ 55 per share is a 32.5% premium to the 90-day volume-weighted average, which means it’s a higher whisker than rent kills, with a 19x corporate value and ebitda forward ratio. ..

The $ 150 million synergy should cover premium chunks. It will be taxed and capitalized at $ 1.2 billion. Rentokil is a systematic acquiring bank and should be able to raise Terminix’s ebitda margin. Less than 19%, these are more than 3% lower than themselves.

Pest control and hygiene services generate a lot of cash, Rentokil can pay four-fifths in cash and the rest in stock. We are aiming for ebitda, which is 2 to 2.5 times the medium-term net debt.

This transaction poses equal consolidation risk, as evidenced by a one-tenth decline in stock prices. But transactions still have logic.Like the Mouse King Nutcracker, Rentokil sheds light on its feet.

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