Lured by Pest Control Industry's Growth and Prospects for Profits, Giant Firms Are Gobbling Up Family-Owned Outfits : Getting the Bugs Out

By KEITH BRADSHER

May 9, 1988 12 AM PT

Times Staff Writer

After working a quarter century for big pest control companies, Dale J. Terry set up his own exterminator business in 1975. Within 10 years, B&T; Pest Control in Salinas, Calif., had 15 employees and $500,000 in annual sales.

Terry abruptly sold B&T; to Western Exterminator in March, 1985, and became Western’s local branch manager. The cost of pesticides had tripled in a decade, equipment had doubled in price, regulations had proliferated and competition was becoming cutthroat. The last straw was a leap in annual liability insurance premiums from $8,000 to $30,000.

“I just figured I couldn’t make it any more and make a profit. I didn’t want to work for an insurance company,” Terry said.

Dominated by small family businesses since its infancy, the nation’s $2.7-billion urban pest control industry has begun to shown signs of consolidation. Western has bought seven small firms in the past three years, all but one in California, and in the past 18 months such giant companies as Johnson Wax, Waste Management and ServiceMaster have all started making acquisitions.

More small exterminator companies continue to come up for sale. “We’ve had many come to us,” said Roy Ashton, Western Exterminator’s general manager and vice president. The privately held Irvine company has annual sales of $30 million to $40 million.

Johnson Wax started the current trend when it bought 600-employee Bugs Burger Bug Killers of Miami in November, 1986, for an undisclosed price. Johnson, the Racine, Wis.-based maker of Raid insecticide and a wide range of cleaning supplies, saw the acquisition as a way to use more intensively the products of its existing insect research labs, said W. Lee McCollum, director of global service businesses.

Big companies such as Johnson have an advantage over small firms in bargaining with insurers, he said. “We are larger, and we have more leverage in that respect.”

The following month, ServiceMaster, a household and hospital services conglomerate with headquarters in Downers Grove, Ill., paid $165 million for Terminix International of Memphis. ServiceMaster has since bought a number of small pest control firms--it won’t say exactly how many--and is converting them to Terminix outlets. That has given Terminix a total of 360 branches nationwide, said Roger Ervin, vice president for financial relations.

Oak Brook, Ill.-based Waste Management entered the pest control business only last summer and has already bought local firms in Massachusetts, Florida, Georgia, Texas and elsewhere. “We will continue to be making some acquisitions,” said spokesman William J. Plunkett, who declined to identify the price or total number of companies already purchased.

Big Bankroll Helps

Large companies are attracted by the pest control industry’s steady, 7.5% annual growth rate since 1980 and by the prospect of realizing various economies from large-scale operations, said Larry Sullivan, an industry consultant with Klein & Co. in Fairfield, N.J.

Corporations also can afford to pay for the ever more expensive pesticides, equipment and training the industry demands. Terry and a partner started B&T; in Salinas with $10,000 in 1975. The minimum starting investment now for a pest control firm with growth potential is $50,000, Terry said, plus living expenses for a year until the investment starts yielding profits.

Many corporate customers also believe that big firms are less likely to misuse pesticides, Sullivan said. “There has always been, particularly in the restaurant business, a tremendous turnover of accounts because of a lack of professionalism by many small firms.”

“The industry in general has been made up of a lot of very small operators. . . . We think it’s a market that could be professionalized,” Johnson’s McCollum said.

Small operators deny that they are less competent, and they argue that owners who know their workers personally can provide better supervision than distant corporate masters. “We seem to be able to give a little better service and we seem to be able to keep people for a long time,” said Robert D. Hoffeld, president of Clint’s Pest Control in Los Angeles. The firm specializes in eradicating ants and roaches and employs only two workers, one of whom left recently after 10 years with the company.

“I worked for a large pest company. We had extreme turnover, both of employees and accounts,” said John T. Munro, director of education for Pest Control Operators of California, a trade group headquartered in Sacramento. Small companies typically hold their accounts and employees longer, he said, while acknowledging that, “big companies get corporate chain contracts, and keep them.”

Must Continue Education

The number of licensed exterminator companies in California dipped slightly in the mid-1980s because of high insurance premiums, but the total is now near 1,200 again as small operators enter the business and insurance has become more readily available again, Munro said. Yet medium-sized and large companies account for an ever-growing share of the California industry’s sales, he added.

Paying for employees’ state-required continuing education courses has been another rising cost for small businesses. California’s Structural Pest Control Board now requires exterminator operators and field representatives renewing their three-year licenses to prove that they have 30 to 42 hours of continuing education.

While Western has six full-time traveling instructors, independent operators until four years ago had to pay for seminars from chemical companies--who tend to plug their own products--and from retired exterminators. But a continuing education program started in 1984 by Pest Control Operators of California, now makes affordable, objective instruction available to small exterminator firms, Terry said.

The overall growth in regulations, concerning everything from allowed chemicals to consumer rights, has been expensive but worthwhile, Terry added. When he got his first license three decades ago in San Francisco, “you went up and took a test, 100 questions, true or false.”