Rentokil rallies on acquisition of US pest control business
Rentokil Initial rallied after announcing that it has reached an agreement to acquire US-based The Steritech Group for $425m in cash to accelerate the growth of its pest control business.
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Rentokil said the deal, which is subject to US regulatory approval, strengthens its position as the number three pest control business in the US, which is a market of around $7.5bn and accounts for approximately 50% of global pest control services.
The agreement will also see Rentokil become the third largest pest control group in Canada, where Steritech also operates.
Rentokil said the company’s North American business currently has annual revenues of around $0.8bn.
The FTSE 250 company said three-year cost synergies are estimated to be at least $25m and the transaction should deliver profit before interest, tax and amortisation of $25m to $30m in 2016 and EBITA returns in excess of 12% by 2018.
Chief executive Andy Ransom said: “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."
RBC Capital Markets said the deal is another step in confirming the long-term strategic direction of the group.
“Today's Steritech acquisition in the US ($425m cash deal) is a significant move - being the largest deal this management team has executed,” said the Canadian bank.
At 1535 BST, Rentokil shares were up 2.4% at 151.80, bucking the downward trend in the market.