I just had Nick Bartolo back on the show. Nick runs Essential Partners, a wealth management firm that only works with business owners going through a liquidity event, and a lot of those owners are in pest control. Over the last 24 months his clients have exited more than $600 million in business value, so he sees a lot of deals.
We talked about what the market looks like right now, what buyers are actually paying for, and how to get yourself ready if a sale is anywhere on your horizon. Here’s what stuck with me after we hung up.
This episode is part of the PCM Podcast. If you missed Nick’s first time on, start with what your pest control business is really worth.
Nick said the market is very active. There were nine figure deals this year, a lot of eight figure deals, and plenty under $10 million. The buyers are the usual suspects, meaning the big private equity rollups, new private equity entrants, and the strategic acquirers.
The word he kept using was quality, so I asked what that means. Revenue of $4 to $6 million and up so a buyer gets some scale. Recurring revenue at 70 or 80% or above. Gross margins in the 60 to 65% range and higher. And growth, but not the kind you think.
“You don’t need a 20 or 30% growth rate because typically that’s not going to lead to high profit margins,” he said. Growing 6 to 10% a year with cash flow margins pushing 20 to 25% is what drives the premium. Do that and you can see 15 times EBITDA, maybe higher. He has clients who turned down nine figure offers above 18 times this year.
One thing surprised him. He used to tell owners to spend two or three years getting margins up before a sale. This year he saw companies expand margins fast, keep growing, and still get paid for the new higher level of cash flow. Buyers aren’t paying for sales. They’re paying for cash flow.
Run the numbers at 10 times, not just 18
Nick will not predict multiples, and he doesn’t want you to either. If you’re planning on premium multiples being around in five years, plan for the opposite too.
“Markets, private markets, public markets, are often driven by greed and fear,” he said. His favorite example is Microsoft. After the financial crisis, one of the strongest companies on earth traded at eight times EBITDA for three years. So if you think a pest control company can’t trade at 10 times, that’s just overly optimistic.
His advice is simple. Run your numbers at 18 times and at 10 times, and make sure you can live with both.
Watch what Pesco and Rollins do next
This is the part I’ll be thinking about all year. The big rollups that came in after COVID and bought aggressively haven’t sold much yet. Greenix did sell to private equity last year, and while the number wasn’t published, Nick reads it as well above 15 times, maybe 18.
Pesco is the one to watch. Nick has no inside information, but he thinks there’s a real chance it goes to market in the next 18 to 24 months, and whatever multiple it gets will be a telling data point for everyone. “Why would new private equity entrants be out acquiring businesses at 15, 16, 17 times EBITDA if a large blue chip rollup only sold for 13?” he said. He doesn’t expect that, but you should know it’s possible.
Then there’s Rollins. The stock is down 45% from its peak this year. For years Rollins traded at 30 to 35 times EBITDA, which created what Nick called a valuation umbrella. Everyone below it felt safe paying high multiples because they figured they could sell higher later. Now that multiple is down around 20.
The reason is almost funny. Rollins guided to 7 to 8% organic growth and came in around 6, and margins slipped about a point. “Wall Street and investing is all about expectations,” Nick said. Miss them a little and both your earnings forecast and your multiple get cut.
The other forces pushing on multiples
A few more things Nick is watching. Interest rates on the 10 and 30 year bonds keep creeping up, which raises the cost of financing a deal and pressures multiples. Private equity as a whole is having a hard time selling the companies it already owns, so its investors aren’t getting money back, and that slows new money coming in.
On the plus side, AI is disrupting a lot of business models, but not ours. It’s hard to replace someone spraying a house. Nick thinks pest control holds its value for that reason alone.
He also brought up something Rollins said, which is that digital leads got a lot more expensive. Every market is different, and ours hasn’t crept up. But you have to know your numbers cold. Your CAC, your payback period, your gross margin in the first 30 days. Even at $300 a lead you can make money if your pricing is right, and it’s still cheaper than door to door.
Keep raising prices, and go easy on the fleet
On the business side, Nick’s prep list is short. Buyers look at everything, so if you take margins up, do it responsibly over a few years. If they think you slashed costs at the expense of growth or durability, the multiple suffers.
The easiest way to raise margins and growth at the same time is pricing. “People are scared to take up pricing. Oh, I’m already at the top of my market. It’s like, you got to keep taking up pricing every year,” he said. If you’re two or three years out from a sale and you haven’t been doing it, start now.
Then a small one that catches sellers off guard. You have to pay off your fleet debt out of the headline price. Nick has had sellers replace half their trucks the year before a sale and then feel sick when that debt comes off the top. Don’t stop replacing trucks, just be a little more judicious close to a deal.
Prepare the person, not just the business
I brought up the part nobody talks about. I know owners who built a business their whole lives, cashed out millions, and were gone within a year. They didn’t take care of themselves, or they drank themselves to death. The business was their identity for 20 years and then one day it wasn’t.
Nick sees it too. A lot of owners forsake everything else to build the company, and their family and friends move on and build their own lives. The people at work become their family, but once that owner is no longer writing their check, they’re off. “They’re outside the company and then they’re lonely,” he said.
That’s why he wants to get hold of an owner at least a year before the money hits. It’s education, and it’s modeling the personal side in detail. If I sell for $20 million, what do I have after tax, what can I take out every year, and does the pile still grow? His line stuck with me. Don’t run your business like a pro for 20 years and then “start making financial decisions with this pile of cash like an amateur.”
Decide with a scenario analysis, not a bad week
I asked what he tells someone on the fence. Do the same work you’d do in the business and point it at the decision. Model revenue and EBITDA out three years, run a range of multiples, and look at the range of outcomes. Maybe you have a $30 million offer today and the model says $45 million in three years. Now you can decide if that risk and three more years of your life is worth it.
The trap runs the other way too. You do everything right, grow cash flow 10 or 15% a year, and multiples drop 30%. You sell for the same $30 million and gave up three years with your family for nothing.
Nick said almost nobody does this. Owners run models in their business all day, but they don’t connect it to their own life. So the sale ends up being emotional. They’re fed up with the team, retention dipped, or AI changed their marketing, and they sell instead of running the numbers.
The biggest mistake is tax
I asked Nick for the biggest mistake owners make, and he didn’t hesitate. Tax. Most people wait until the deal is closed, or until the end of the year, to think about it.
He described it as a window. It’s wide open right around the letter of intent, and it narrows every week toward closing. Two weeks before close, most strategies are already off the table. The work has to happen between the LOI and the close, and a year or two out is even better.
Here’s the math he gave me. Take a $30 million deal, 20% federal on capital gains plus about 5% state. That’s $7.5 million in tax with no planning. With proper planning, using a mix of investment, real estate, and trust and estate strategies, you could pay $3 million or less. That’s a $4.5 million difference, or about $400,000 more a year off your portfolio forever.
“Even if you sell your business too early, but you cut taxes from a 25% rate to below 10%, you’re compensating for a lot of other mistakes,” he said. And he was clear this is right down the middle of the tax code, no gray area. A lot of us carry baggage that planning means you’re doing something wrong. You’re not. You’re just not going to get it from your neighborhood advisor.
Getting rich and staying rich are two different jobs
Most owners have their whole net worth in the business, and Nick doesn’t blame them, because where else do you get those returns. But it means the day the wire hits, they’ve never really invested before.
So he doesn’t dump $20 million into a 70/30 portfolio on day one. He might start at 20 or 25% in stocks, spread around the world, and build from there. The goal is returns that compete with the stock market at around 60% of the volatility, so you don’t panic and sell at the bottom the next time a COVID happens.
“You get rich with concentration and building this concentrated business asset, and you end up staying rich with diversification,” he said. His first job is making sure you stay wealthy. Then he puts a tax layer over the whole thing so the government isn’t quietly taking a cut every year.
What I'm taking from this
Nobody can tell you what multiples will be in three years, Nick included. What you can control is the quality of your business, the discipline to raise prices, the honesty to run the numbers both ways, and the timing on tax. Get those right and you’ll be ready whether you sell next year or in ten.
Nick and I are going to record some live case studies at PestWorld, real numbers on a real deal, so watch for that. Thanks for coming back on, Nick.
