Paul Giannamore on What Your Pest Control Company Is Actually Worth

00:00 Dan Leibrandt

Hey everyone and welcome back to Pest Control Legends. I'm your host, Dan Leibrandt, and today I'm with Paul Giannamore, managing director of The Potomac Company. Paul is recognized by institutional investors, Wall Street analysts, and the largest companies in the industry as the top global authority on pest control valuation and M&A. He's advised on hundreds of deals and more than $10 billion in transactional volume. And his firm handles more sell-side deals in pest control than every other advisor in the world combined. In this episode, we're going to talk about what pest control companies are actually worth right now, where this consolidation wave goes from here, and what owners need to start doing years before an exit to maximize their outcome. Now, without further ado, Paul, welcome to the show.

00:49 Paul Giannamore

You're very smooth. Podcast before and my introductions were never as is as smooth as yours. So I appreciate it. It's great to be here. I yeah.

01:01 Dan Leibrandt

I appreciate that, Paul. I would doubt that because I've listened to many of your shows. I think you're a very smooth speaker.

01:06 Paul Giannamore

Well interesting. I'm excited to be here. I know you and I attempted to do this about a year ago and my travel schedule got in away, so I wanna issue a public apology to you. But here I am in between travel. I'm yeah, I just got back from a month on the road and then in the coming days I have to go to Brazil. So you caught me at a great time. It's good to be able to chat with you and I. I'm impressed what you and your team are doing in the industry. I know that you work very closely with Jonas, who I've known for a long time, and I al always get excited to see what you guys are up to. So it's great to be able to chat with you today. Thanks for having me.

01:44 Dan Leibrandt

Definitely. I appreciate that. And I appreciate the apology, but I know you're busy, so there's no need. So sweet Paul, I first wanted to dive into your background. I know you have a an extensive background and you started your company Potomac over twenty years ago now. So talk to me first of how you started your company.

02:01 Paul Giannamore

Yeah, I Dan, I'm gonna t I wish I could talk about something today that I haven't talked about publicly before and nothing's popping into my mind. But yeah, look, I started Potomac twenty years ago and I was a tech banker. So when I got out of Cornell I worked for Lehman Brothers for a bit, and it's no longer with us. And I did that in London and then I hired him with Credit Suisse and went out to Silicon Valley, the San Francisco Bay Area back in the late nineties, which of course was the height of the dot com boom. And unfortunately I was there for the bus as well. But yeah, I started my career as a tech banker and then then I went into the buy side. So I worked for a private equity firm called American Capital that at the time was the largest publicly traded buyout shop in the US. It's no longer with us. It was acquired some years ago.

02:56 Paul Giannamore

But for me that was a phenomenal experience. So I got to be on the sell side on investment banking. And then I did a few years on the buy side. And then a college roommate of mine. Now he was working he was working in financial services. He was tired of what he was doing. And I was working long hours, little pay, and we decided, hey, let's go out on our own. And so at the time, let's think about this, I was probably twenty-five years old. We put together Potomac, which was originally called Bay Street Capital. And it was called Bay Street Capital because Mark, my original partner, I lived on Bay Street, and that's how creative we were. We were like, okay, let's do Bay Street Capital. Unbeknownst to us at the time, Bay Street is the equivalent of Wall Street for the Canadians. I don't if you knew that. I certainly didn't know that, but Bay Street in Toronto was s that is effectively the Canadians Wall Street. So we started that and we I remember we had a ton of Canadians tracking us down for the first year, which was bizarre. But yeah, we started that firm. I was way too young. I in retrospect I wished I would have gotten more experience. I wish I would have had more capital. But I didn't. And I guess, thinking about the counterfactual life now, who knows how things would have turned out if I if I didn't jump out when I did. But I think in retrospect I probably did a little bit premature. But anyway, what was done is done and it worked out exceedingly well. Back in those days we were agnostic, meaning when I first started, when P Bay Street Capital morphed into Potomac and we started focusing on tech businesses, software, IT services, so on and so forth, because that's what I knew. It was sexy, it was cool, but I was also competing with a lot of very bright people.

04:53 Paul Giannamore

And it was a relatively crowded market. And back in those days, one of the bankers that I knew when I was at American Capital would show us bottled water deals. He called me up one day and said, Hey, I am I'm on the West Coast, you're on the East Coast, I'm doing a pest control deal. Can you help me? I'm like, help you with what? And he's like, I it's the company's like an hour from you and I just need somebody to sit in due diligence. And then, for me at the time, I didn't even know pest control was a business, right? I thought it was just some like Stan the Exterminator in a truck. I didn't I'd heard Orkin and Terminix, but I didn't know anything about it. I was like, sure, I'll do it. And so I went out there and did some diligence. And we were just starting out. We didn't have a ton of business. So I was like, yeah, I'll do this. So I went out and did it. I met the owner of the pest control business who was the son of the founder and the owner and the owner at the time. The f the father had gotten sick and he had recently passed away and the son decided to sell it. The son was maybe, I was 25, he was probably 35. And he and I really hit it off, socially. And so I'm in diligence. We became friends. I worked on that transaction. Then after that deal, he started to refer his friends to me. And then I started to learn pest control. And this was back in the early 2000s. It was probably circa 2003, 2004, something that. And then at that time I was like, shit, there's a lot of pest control companies, not just in the US, but globally. And I'd spent a significant amount of time working on foreign transactions. So not only was I doing pest control deals in the US, but I was in the Gulf. I was in Europe. I was doing things in Asia. And, I decided at the time l now when I look back, I it sounds very sophisticated and strategic. I really mapped this out, but that's not the case. I just looked at it and said, Well, there's no competition, any advisors in pest control, quite frankly, I thought that they yeah, I'll speak freely on your podcast. I thought that they were idiots, right? There were some guy, some of these guys that had owned a pest control company and could barely use a calculator and we're out advising folks and I'm like, okay, this is gonna be easy. It turned out to be easy. And then as I got deeper into pest control, I started to expand into other allied resident service commercial services businesses, which is what we do today. Like for example, in Europe and Asia In the Middle East, we'll do a lot of integrated facility services deals because overseas pest control tends to be integrated with other services, commercial cleaning, hygiene, so on and so forth. But then when I as I got deeper into pest control, I started to think to myself, there's a real opportunity here to almost create a cartel. And what I mean by that is when I got into pest control, it was a duopoly. There was Terminix and Orkin, and those were the only buyers in the business. Sellers were not running competitive processes because it's really hard to have a competitive process with just two acquires. At the time, Orkin was more focused on acquiring general pest control. Terminix is doing a lot more termite-related stuff, quite frankly. A lot of and I always used to say back in the day, and I even said this publicly at one point in time, my great hope was that the that the FTC would come after me one day for price fixing, effectively controlling pricing in the pest control M&A market, because I thought to myself, there's a lot of mistakes owners are making and in taking far less for these businesses than they should be. And yeah, so over time I focused on doing as many pest control deals as I could, learning the industry as deeply as possible. And for me, obviously I am profit motivated, but I also wanted to do some good in the industry. There's a lot of folks that work many, many, many, many years building these businesses and I wanted to find myself in a position where we always helped people make the right decisions for them rather than just do a transaction. That is part of the ethos at Potomac to this very day. I think if you talk to a lot of our clients, you would realize that many of them we work with for four, five, ten, sometimes, you guys like Jim McHale, we worked with them for a decade before we sold the business. And more times than not, to the dismay of some of the people on my team, I'm the one who says we're not ready to do a deal. Value can be created here. So that's me in a nutshell. I think, today I spend my time, I reside in Puerto Rico. I spend about half the year in Puerto Rico and I spend about half the year in the rest of the world. I think over the last 20 years, I've probably spent on average of, maybe 30 days a year in the U.S. I happen to be.

10:01 Paul Giannamore

In the US today as we're doing this podcast, Dan. But for the most part, yeah, I spend a lot of time traveling. I spend about a third of my time now now that I'm old, investing. This is the types of things that I spend time doing. So that's me in a nutshell today.

10:20 Dan Leibrandt

Hmm. Awesome. That was a the great intro. I appreciate the context. One thing I want to talk about more there was you said that owners were taking far less than they should be. Can can you expand on that of like what is the situation with with most owners and looking to sell and not getting as much as they should?

10:41 Paul Giannamore

Yeah, I think if you look at the industry over time, things are have changed dramatically, both industry specific changes as well as global capital markets. I think y what I was referencing back in those days was whenever you sell a business, you in a perfect world, you want to find yourself in a position where you're not necessarily negotiating directly with the other side of the table. In a perfect world, you'll find yourself in a position where you have a valuable asset. It's a unique asset. And you've got a variety of, you've got a handful of acquirers who want to buy to be able to buy that business, right? And so they're effectively competing and competition just doesn't happen naturally. A process has to be created with rules in order to cause that competition. Just like when you go into a public auction, you don't go into a public auction house and there's 200 people in there and everyone's just yelling, I'll pay this, I'll pay that. No, there's an auctioneer who's got a process, he's got rules, so on and so forth. So in the early days of when I got into pest control I don't feel like there was any real sophistication around setting up processes, running these sorts of things. There was not nearly as many buyers because while private equity, of course, did investments in pest control back twenty years ago, it was certainly not as prolific as today. We didn't have Rentokil in the United States. Although Rentokil had been around for decades, they were I think for almost a twenty-five year period, Rentokil was largely doing about twenty-five million per year every year in the US and that was about it. It wasn't until the Ehrlich acquisition back in 2005-ish, where now they were doing north of 100 million. And then fast forward to 2011-12, Andy Ransom moved from corporate development to become the CEO and then really focused on acquisitive growth in the United States. Yeah, Anticimex, of course, the Swedish outfit backed by EQT, didn't enter the US until December 2016.

12:55 Paul Giannamore

And then we didn't see the proliferation of private equity and pest control until the late teens, but primarily the early twenties with the pandemic. So when I talk about pest control owners not getting what they should have, if you think about twenty years ago, a pest control business typically sold for somewhere around four to five times EBITDA, right? And that implied roughly a, 80% of revenue to 1.2 times revenue. That was the broad range. In with a lot of these deals, when an acquirer would come in and buy them, gutting the cost structure, the post close or the entry multiple wasn't five times. By the time they got rid of, there were some cost synergies and revenue enhancements and so on and so forth. Back in those days, they were effectively buying these businesses at sometimes two or three times EBITDA. And that was a function of a variety of different things, namely lack of competition, namely lack of sophistication. But at the end of the day, those things were extremely low priced. And I always looked at pest control and I thought to myself that these businesses should be easily seven to ten times EBITDA deals. This is how I always felt since I entered this industry, and I worked really hard to get it there. To my utter surprise, over the last seven or eight years it dramatically shot past that, right? And we see deals getting done in twelve, thirteen, fourteen, fifteen, sometimes twenty times EBITDA, which still surprises me, but that's where a lot of these highly competitive scarce assets trade, at least at present.

14:47 Dan Leibrandt

Hm, got it. One thing I wanted to get clear on, 'cause I'm guessing maybe thirty to fifty percent of people listening don't even know what EBITDA is. Can you quickly explain what EBITDA is and why it's so important? Hey guys, Dan Leibrandt here. Real quick, if you're a pest control owner looking to grow, I have two amazing resources for you. Number one is our free Pest Control Millionaires Facebook group. We have over 4,000 owners just like you in our community and would love for you to be a part of it. Go search Pest Control Millionaires on Facebook and request to join the group now. Number two is our book, Zip Code Kings. This was authored by me, Jonas Olson, and Jake Sheldon to be the ultimate guide to pest control marketing.

15:26 Dan Leibrandt

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15:38 Paul Giannamore

Yeah, I will. I th I think from from a valuation perspective, I think listeners should think about the fact that, I know a long time for a long time everyone talks about pest control businesses trading or selling for a multiple of revenue. And revenue is really easy to see. I've always viewed it as a revenue multiple is a resultant multiple. It's like deals are driven by cash flow, right? It's like If you buy a company, certainly you get the revenue, but what you can really spend is the cash flow. So EBITDA is a proxy for cash flow. And cash flow is just your revenue minus your expenses. What is the cash generating capability of the business? The end of the year, when all of a sudden done, how much cash remains? EBITDA is just a proxy for that. And it's really almost like a finance term. Which is earnings before interest taxes, depreciation, and amortization. If you're out there and you don't know what that means, it doesn't matter. You're not any better or worse off for having known that. That's a that's a term that people like me throw around. If we get really simple, it's really what's the cash generating ability of your business? And when a deal trades for, 10 times cash flow. The shorthand of that is a revenue multiple. So Dan, you might say if a business runs a 20% margin and it sells for 10 times, that implies that it sold for two times revenue. And so people would say that's a 2x deal. It's not really the revenue driving the deal. It again, it's a resultant multiple. And I can I could say, your business sold for 50,000 times the number of pencils in your desk.

17:31 Paul Giannamore

Right. So if it or a million times. So if you've got one pencil on your desk and you sold it for a million bucks, you sold for a million times the number of pencils on your desk. It is a non-meaningful number that doesn't drive a transaction. It describes the transaction. And that's what a revenue multiple is. So I always encourage folks to think about cash flow. And certainly throughout the course of the discussion, if you want to get deeper into cash flow and durability and so on and so forth, we can do it. But maybe we'll stay on the surface for a bit here as you take us.

18:04 Dan Leibrandt

Yeah. No, I appreciate that explanation. That that was super helpful. So yeah, I next want to get into to multiples then. So you've established that we shouldn't calculate multiples based off revenue, but instead off of cash cash flow. So what can people expect? What multiples can people expect at different levels? And do different levels of EBITDA unlock better multiples?

18:34 Paul Giannamore

Yeah, in a in a in a healthy market, and when I say about healthy market is a market that's not at the height of a consolidation boom that provides for realistic returns, we would typically see what I refer to as multiple expansion. And very simply and that can mean a variety of things, but from the context I'm using it in is like the larger a firm is, typically the more resources and capabilities it has, and therefore the less risky it is. So if you have a pest control business that does a million dollars a year in revenue, and it's let's just say it's me, right? It's me and five technicians, right? Just six of us. We do a million dollars a year in revenue. And then the guy down the street has I don't know, let's say a hundred team members. And is doing I'm gonna make this up a hundred million, right? Who cares? So I do a million, he's down the street, he does a hundred million, he's very efficient. His business is less risky than mine. So I should in theory sell for a lower multiple of cash flow because for every dollar of my cash flow you're buying, you're there's more implicit go forward risk for you because it's just one dude and five technicians versus a hundred people down the street making tens of millions of dollars more. So in a very in a healthy market, we should see natural multiple expansion across size segments within the market, right? A one million dollar business should sell for, I don't know, five X EBITDA or cash flow. A twenty million dollar business should sell for, I don't know, 10 times. A hundred million dollar business should sell for 15 times, right? That's typically what we would see. But in pest control, and I and I wrote an article on this, I don't maybe a decade ago, where I started to notice a flattening of multiple expansion within the industry. We used to see more expansion, meaning the larger a company got typically the higher the revenue or the EBITDA multiples and revenue multiples would be. But that's not really the case here. And so I would certainly say at the very low end of the market, the 500,000 in revenue guy, the 1 million or the 2 million, yeah, you'll typically see lower multiples. But as you start to get 5 million and above, a multiple on a $5 million business is not dramatically different than a $25 million business. And it should be, but it's not. And I think there's some reasons for that. And my personal opinion is that scarcity value comes into play from the perspective of, we might have 20,000 pest control companies in North America, but if you look at the distribution, probably the mean business maybe does 700,000 per year out of those 20,000.

21:27 Paul Giannamore

But there's a lot of skewage there, meaning there's a small portion that are doing north of two or three million per year. I'm talking about a couple thousand out of the total 20,000. It's not a normal bell curve distribution. It's dramatically skewed. If we think about the PCT Top 100, or I call the Phantom 100, which is those that don't report on a list like the PCT Top 100, it you've got the massive players that own a huge chunk of the market, right? The publicly traded guys and the PE backed ones. And then you get below that and it falls off very quickly. And so scarcity value to a certain degree, I believe, has propped up valuations in the space. And I guess my long answer to your short question is I would expect and I would have hoped to see more multiple expansion in this industry. And I think there's probably a dozen reasons for the reason for for the fact that it doesn't exist. I can think of a million as we talk. Another one is like guys will go out anti take Anticimex. Started with, buying platform acquisitions across the East Coast. You pay to play. So we did the Modern deal, the JP McHale deal, the Triple S deal, Killingsworth, Clark, all those platform acquisitions across the East Coast. Those companies are required to pay very high multiples due to scarcity. But once they make that acquisition, these are buy and build type situations. So all these companies that private equity backed guys are buying a platform, doing add-on acquisitions. Well, you pay 18 times for a platform acquisition. Now you need to do add-on acquisitions because you want to blend down your multiple. Unfortunately, the math doesn't always work that way because you paid 18 times for a platform. Now you want to do 20 acquisitions in that market. The very fact that you're out buying them tends to raise the price, right? Which ultimately hurts you, which compresses multiple expansion. So I can go on and on, Dan.

23:33 Dan Leibrandt

No, I love it. This is so good. I wanna ask you too, and some people have even asked me this, is where is the market at right now? Some some people say five years ago is the right time to sell, but do you see that we're in a down market or art market regarding selling?

23:52 Paul Giannamore

I think it's been remarkably stable over the last few years. So if I let me take a if I'll take a stroll down memory lane. For two decades the market was pretty static. We started to see multiples go up at the end of twenty six, early twenty seven, then we had the great financial crisis and then things started to fall apart. And it was a moribund market for a couple of years. 2009 and 2010 were horrible acquisition years across all industries, but also in the pest control industry. Not a lot of took place. The central banks around the world suppressed interest rates, asset prices beginning began to rise, and we started to see multiples slowly start to rise in 2011, 12. And then Rentokil decided they were going to focus on a North American strategy. So that was the bump number one. Bump number two was in 2014. Bump number three was an Anticimex entered the market in 2016. And, back by the time we went from 2010 to 2016, we saw typical transaction multiples go from five or six times EBITDA and around roughly one times revenue to 2016. We started to see them between, eight and twelve times EBITDA and between two and three times revenue. That's where that went in that period. Then it was static for a few years. In October of 2019, Terminix almost went bust publicly. I'm being dramatic about it, but I wrote an article back in late 2019, early 2020 called The Beginning of the End.

25:40 Paul Giannamore

And that's when Terminix shut down their M&A program, fired the president. It was a total disaster. That impacted multiples. And then starting on September 1st of 2020, things exploded, right? So we didn't do any deals from March till September. Everything was put on hold. September 1st was the start of the first post-COVID transactions. September 1st, 2020. And from September of twenty twenty to the end of twenty twenty-one was the best time in my lifetime to own and sell a pest control business. Transaction multiples hit an all-time high. Acquires did virtually no diligence. We did we were from I would say from September of twenty twenty to the end of 2021, we were doing on average globally 100 million in transaction volume every single month. Hundred million in deals every single month. So yeah, it was a really good time. Then in come into 2022, we started to see the Fed needed to reverse some decisions. We started to see inflation, as you will recall. There were a lot of things going on. And we started to think see things soften a little bit. I would say that transaction multiples now are I'm seeing more multiple expansion than I've seen in the industry in a long time. I think certain assets are still selling at very similar transaction multiples to what they did back in twenty twenty-one. But back in twenty-one, why I said it was the best time in my lifetime, or probably the best time in history. I don't think there's anything documented prior to this that's demonstrated a better time to own and sell a pest control business, is back in those days, these guys were buying anything that moved. And so if you owned a dog shit company in 2021, you were in luck because you were gonna sell it. And if you own one of those now, it's still sellable, but you're not gonna get nearly the same multiple. If you own a premium business, and when I say premium business, if you've got a business that's growing, at least double the rate of inflation, so we're talking about six.

28:09 Paul Giannamore

Percent or greater top line, ideally in the 10% zone. If you're doing roughly 80% recurring revenue, if you've got gross margins in the high 50s to high 60s, somewhere in that range, if you're doing all of those things right and you're of a decent size, five million or above, like you're a scarce relatively premium asset. You're going to, you might find yourself in a world where you get 15 times, 16 times, 17 times even done. It's still possible and it happens.

28:38 Paul Giannamore

But if you're that guy that's got the four million dollar guy who's got fifty two percent recurring revenue, maybe not the best pricing, back in twenty twenty one, it was easy peasy. Some idiot's gonna buy this. There's not as many idiots now here in twenty twenty six. So...

28:56 Dan Leibrandt

Huh. Okay. Okay, so I was right. So about five years ago it kinda peaked, but now you're saying it's still stabilized.

29:04 Paul Giannamore

Yeah, and I would say for pest control owners out there who, as an entrepreneur, you're you're thinking about things in a variety of different ways. And how I like to think about things myself personally, particularly when I'm making an investment, is like if I'm an investor, I can get my return on an asset in one of two ways. I can get a dividend or I can get capital appreciation. So I buy a pest control business, how do I get my return from that? It's either kicking off cash flow on a monthly basis. And or the actual asset itself is increasing in value. When I think about pest control, I like to think about things from a total returns perspective. So it I if you take a stock, for example, let's say that it's the same concept. Let's say I buy a stock for ten dollars a share, and that stock is dividending a dollar per. Per year. I'm getting a 10% dividend yield, right? I'm getting a 10% return per annum on that stock. The other stock I buy is $10. It doesn't have a dividend, but it's increasing in value, right? So let's say it goes up 10% a year. My return is effectively the same from either those, it's just different means. So I think when I look at pest control, transaction multiples evaluations have gotten so high. It's and I and I've said this publicly, it's like in the area of investing. It's the only area in our lives where we get excited about prices going up, right? You go to the grocery store and the price of tomatoes is doubled. You're not jumping for joy, being like, this is great. Tomatoes are awesome. They're so expensive. No, but when it comes to asset prices, people get excited about it. But every from an investment perspective, the price that you pay is inversely related to your return, right? The higher the price you pay, the lower the implied forward returns are. And so when I think about pest control right now, because valuations are so high, you effectively as an owner tend to lose the you lose the rising tide effect from the perspective of valuations are already up there. So you're not getting that appreciation. I think that I think that pest control remains an awesome business. I think it's attracted a lot of capital. And I talked to Jonas about this last time he and I were on the air. This industry has attracted a lot of capital. And with capital comes competition. And with capital and competition comes sophistication. So I think from a long term perspective, I think it gets harder to compete. I think it's like you're in the online marketing world, you know what has happened.

31:59 Paul Giannamore

To online marketing, customer acquisition costs. It's no joke. We see it. So those are some of the great things from the cap hot money coming into the market. It's raised asset prices, but it's also made it much more difficult. If I look back, hell, if I go back in time 15 years, that would be an awesome time to own a $10 million pest control business because competition was just so different. The capital flows in an industry were just so different. You could really do a lot of damage. Now it's more difficult. Not to say that it's not a good business to be in. It's just the fundamentals have changed in my opinion.

32:39 Dan Leibrandt

Yeah, totally. I agree. I think companies need to be more sophisticated now. And even though home services is behind other major industries like software, and I think even pest control is one of the lagging home services. I think it is still like you can no longer be the person without a CRM or not not doing any marketing, that kind of thing.

33:01 Paul Giannamore

Yeah. Yeah. And it's just Dan, now there's table stakes that don't ig that didn't exist years ago. It's like, you talk about like a CRM and now going into twenty twenty seven, you're at a dramatic disadvantage if you're not using AI AI enabled automated response systems and so on and so forth, right? It's just it's changing rapidly. And I think it makes it more difficult for like complexity for an entrepreneur now. There's just so many more things that you can do with the business. There's so many more solutions. There's so much more technology. It's really hard, I think, for a lot of people to keep up, but you've got to do it.

33:41 Dan Leibrandt

Yeah, yeah. It's overwhelming. Another question I want to make sure to ask you is biggest mistakes you see in the market across all these pest control owners you see. Maybe you're working with them or maybe I don't know, you see them in Facebook groups or something. What do you see where you're just like, why are you doing that? This is like a major mistake you're making.

34:05 Paul Giannamore

I think that there's a lot. So when I in my capacity, I work with hundreds of different pest control owners a year. And so if I take a step away from operational mistakes and why the heck are you doing that? I think one of the and I don't know if this is a mistake, but this is potentially costly. I think business owners, entrepreneurs that are growing these businesses and are really trying to create wealth for themselves, I think they have to spend a little bit more time being self-aware and understanding what it is that they're actually hoping to do. And I bring that up because, I'll have a lot of discussions with guys who, toil in the pest control vineyards for many, many years. And as anyone listening to this, run a business, it's like you're missing a lot of things. You're missing birthdays, you're missing some Christmases, you're missing a lot. So I think you really need to get very clear. What are your goals and objectives with this business? What master are you ultimately serving? And that's very hard to do. And I think all of us to a certain degree tend to suppress those sorts of emotions and feelings on a day to day basis and just keep grinding. But I tend to work with a lot of people I'm like the end-of-the-life guy, meaning, we deal with a lot younger entrepreneurs now just because multiples have gone up. But over the course of my career, I typically spent the majority of my time with guys that are between the ages of 60 and 85. And those are the ones who are in a very reflective stage of their life. And they start to calculate what they've sacrificed for certain things. So make sure that. While you're making those sacrifices, you understand what you're doing it for and what that greater purpose is for you. And I don't know if this is talked about as much, but you get to the end of the road and you've got a hundred million dollars in cash, but you've sacrificed so you don't have any hobbies anymore, you didn't spend the time with your kids. And I know a lot of this stuff is cliche, but I almost think it's worth saying it again because it's like I'm not like the nurse or doctor at the bedside while they die, but I'm at I'm the guy who who literally is determining what the legacy looks like. They're stepping owners are stepping away from something that their their ego is attached to for decades, which is a very psychologically difficult and complicated process. And more times than not, I hear people say things like I was so proud of myself and so excited to be able to accomplish all of this, but I don't know if was worth it. So I think those are important things to think about, just really from a high level, you as the entrepreneur, what's driving you and are you really actually feeling and thinking about the sacrifices you're making and what are you getting in exchange? So I think that's an important thing. It's not really a mistake, but when I look at what other guys are doing, I think that some things that there there's small things, but they're there's small almost philosophical things and it recurs in this industry and you probably see it, Dan. I had a guy I chatted with last week who's like, Yeah, I don't I don't believe in service contracts.

37:43 Paul Giannamore

And I'm just like, okay, so what does that actually mean? And he's like, I, he's one of these one-time guys. And I want to go out and do a good job and I get paid and so on and so forth. And then I often talk to these owners who get into debates between what's the difference between a contract or a service agreement, all these semantics. At the end of the day, pest control really is a recurring revenue business. And I always, people constantly ask me questions like, does it need to be written contract? Do I need to have some sort of service ticket? And I define recurring revenue simply as an expectation on the part of the customer as well as the provider for continued service on an ongoing frequency, right? Some sort of a set frequency. From an acquisition perspective, do you need a written contract or service agreement? No, you don't need one. That actually doesn't make it recurring revenue, right? Recurring revenue is like, you go out once a quarter or three times a year, your customer pays you on a monthly basis, quarterly basis, annual basis, whatever, but it's an ongoing relationship where expectations on both sides exist. That creates the recurrent revenue. In my opinion, contracts are or service agreements are more related to what's included and what's not. And it's really good to have that sort of stuff on paper. But I hear these sorts of debates all the time. And I wanted to say this publicly because quite frankly, I get tired of talking about it. It's like you're in the recurring revenue business, it dramatically impacts the value of your business. And so, if I'm an owner, I need to sit down and say, my business should be at least 80% recurring or greater. I need to make hard trade-offs. As a strategist at the home of your business, strategy should be painful. You have to turn things down, right? So there's always trade-offs.

39:39 Paul Giannamore

And so sometimes it's more important to s not do unless you can convert one time sales into recurring, sometimes it's better to not do it at all and say, I am in the business of providing protection on an ongoing basis and that's what we're gonna do. And that dramatically impacts the value of the business. And I often wonder why we still have as much confusion in this industry about that than we do. Dan, I don't know about other big mistakes.

40:06 Dan Leibrandt

No, no that yeah, I'll comment on that. I totally agree. It's so funny. I've interviewed, I think, twelve people in our our Pest Control Millionaires program, just to talk to them a lot on the side. And one of the biggest takeaways that I hear from the program is that they have now switched to recurring services. I'm like, guys, how did you not know this? It sounds pretty obvious. And of course, that that's how you get the lifetime value. That's how you actually get these big multiples and such. So I think it's definitely worth saying, even though maybe these guys have heard you or I say it before or Jonas or whoever, but yes, need to be at least 80% recurring. Love that. And also what you mentioned about thinking about the big picture. I think that is the most important question. What do you actually want out of life? What are you willing to sacrifice? Most guys are just too stuck in the truck, too stuck in the office. They grind for 20 years and then they pop their head out and they're like, I just wasted so much time because like you said, I didn't go to the birthdays. Maybe I didn't travel, didn't spend enough time with the wife, whatever it might be. So I totally agree on that too. And I was gonna bring up a point.

41:17 Dan Leibrandt

Something you said on the Boardroom Buzz podcast when the Julio brothers interviewed you was that you said it's funny, your role, you've almost had to switch to becoming a psychologist. Can you talk about that?

41:31 Paul Giannamore

Yeah, when I came up in this industry, I was of course on the front line and I spent a huge amount of my time in negotiations. And then, as you grow a firm, it's like anything, it's similar to pest control. If you're a one man shop, you're doing the calls and the billing and the service and you're doing everything. And then as you grow up and your firm grows, you're doing less and less of that and more management and scaling people and so on and so forth. In my line of business, I'm still actively engaged In a day-to-day basis on on M&A, but it's largely now I don't I rarely, rarely ever go to meetings with acquirers now. I've gone to one in-person meeting with acquirers thus far this year. It's usually my team that does that. I spend the majority of my time with our clients, and we're a sell-side firm, so we don't do buy-side work. Our firms our firm's clients are individuals who are selling their businesses. So I spend almost all of my client-facing time, particularly with clients, and it's becoming less and less about how do we structure our process, what's the appropriate acquisition universe, how should we respond to this LOI. Although I do those sorts of things, I spend a lot more of my time trying to understand and try to help my clients understand what it is that they want to do. What is thinking about I'll give you examples. It's like you'll have clients who will go through a process and React violently to buyers who are doing what buyers do. So for example, a buyer might ask a particular question and it triggers the seller, right? And so I'm forced now to say to myself, is that seller responding in real time to that buyer? Or Is that almost from a British objects relations perspective, is that some sort of transference from a past relation, right? Because we all tend to have certain there's certain templates that we develop as we grow up as to how we relate to different people, how we relate to our parents, how we relate to our siblings, and so on and so forth. And so when I when I see somebody who's un very untrusting of somebody on the other side of the table, my first question is it really that individual on the other side of the table, or is there something else, is there some sort of transference here from something else? And more times than not, that's the case. So I spent a lot of time with that.

44:29 Paul Giannamore

I spend a lot of time with folks thinking about things from an emotional perspective because business owners, so if you're an entrepreneur, entrepreneurs tend to be somewhat intellectual from the standpoint is, if you're an entrepreneur, you are foregoing benefit, you're foregoing today for the future, right? And anyone in this industry who started a business from scratch and grown it, they've had to forego things now in the great hope of future benefit. And I almost think an intellectual scaffolding is built over time because you could talk to somebody who's two years into this, who has nothing, and you could talk to somebody like Jonas, who's got, tens of millions of dollars worth of value. Sometimes he's going to make, and I'm not talking about Jonas in particular, but I'm just using somebody we both know. Jonas may make some decisions today based upon, a template that was established years ago that's no longer in effect. So I find that owners will sometimes how can I say this? They will avoid emotional pain today by creating an if-then scaffolding in their mind, pushing off the benefits of today for tomorrow. And so sometimes it's like bringing them back. When we talk about psychology, I do you talk about the attachment that somebody has to a business. So this is very common. And for every entrepreneur that might be listening to this, you'll be faced with this at some point in time. Say you grow your business and one of these days you're gonna get a $40 million check for it. God bless. And you're sitting there with an acquire and you're ready to sign this, and you're you're like, you know what? I my business is really my family. Now I've got a wife, I've got kids, I've got this, but I'm with my business family every day. I know these guys, I know their birthdays, they love me, I love them.

46:28 Paul Giannamore

This is very common. This is very common for entrepreneurs to build a business where the people, their team feels like family. And what ends up happening is now they're faced with some decisions because offers are coming in and now they're thinking to myself, well, I need to focus on not only my legacy, what I've built here, but I also have to focus on my team. These guys got to be treated right. And the problem is you can't know. As an entrepreneur, you never know. Once you sign that paperwork, a buyer can tell you whatever they want. You can't know what's ultimately gonna happen. And I oftentimes find myself in situations where sellers are making decisions that are inappropriate for themselves in order to protect their team. And then what ends up happening, I've been through this before. Let's say Dan, you decided you were gonna sell your business and you took five million dollars less because you wanted to go with acquire B rather than acquire A, because acquire B promised you all sorts of things. Fine, do that, it's your decision. Now you move forward with Acquire B and Acquire B lives up to its commitments. So you're feeling good about that. But then you walk through the office and your team doesn't seem to be as excited about you being there. And you're like, well, hold on a sec. Sharon, I've known you for 15 years and Joey, Dan, you're not signing the check anymore. And so to you, these were people that were part of your family, they were helping you build this business, you guys were in battle together. For them, it was a job. Now they liked you, they respected you. But Dan, they were putting food on the table for their family, and you're no longer signing their paycheck. You no longer have authority there. And there are psychological shifts that happen. And so if I'm the boss, you sold the business.

48:19 Paul Giannamore

Now, Sharon and Joey are like, Paul, you're my boy. Dan, what are you doing here, brother? It's great to see you. We'll have lunch sometime. That makes you feel horrible. And you're like, I just left money on the table to protect these guys. And now my relationship, and I can't really put my finger on it, but it's different. And so I think if you're not prepared for that, if you're an entrepreneur that doesn't understand that. These things are natural human reactions. They take place every day. It's not specific to you. But if you're not prepared for that, it can make you throw up. And I've seen it happen before. So, there's a lot. So when I was talking to the Julio brothers about that, it's really trying to get my clients emotionally prepared for a divorce. They are divorcing themselves from a business that has their name on it, from a team that they believe is their family. Going into a world where they have foregone hobbies for a long time. They have not kept current with friends and family. So there it's a weird feeling. You walk into it and you're like, well, man, I quit playing the guitar 15 years ago. I'm not good at golf. I don't really hang out with my team anymore. My family's moved on. They have their own life. And then you sit there and you're like, I've got all this money, but what do I have? There are a lot of things that you can do. To prepare yourself for it. And when I do longer term engagements, I often talk to my clients about hobbies. I'm like, what do you like to do? Well, I used to play the guitar. Well, do it. Start playing the guitar again. I like to golf. I like to shoot. Start doing those things now as you're preparing. It makes the transition so much easier. So I can go on for for hours about all these sorts of things, but these are the types of things that I see.

50:09 Dan Leibrandt

Hmm. Dang. I actually never considered that, but that makes so much sense. And I'm sure people accidentally make it feel like a family, but I've interviewed many of these successful pest control owners. They purposely make it feel like a family. They even use the word family where we're super tight knit and that that's how we build our culture. And I don't know, we maybe we go to church together, maybe we do a feast every month, or we have the these events together. So to split from that, I think divorce is the right word.

50:40 Paul Giannamore

Well, I there's an exercise that you can do. It's like I do this because I am so attuned to what goes on. I was recently like a couple of weeks ago, I was at a dinner and there was twenty-five of my team members there at the dinner. And I sat there and I thought to myself, I will not be running this business forever. What's it gonna be like for me now to not ever be invited to these dinners again? And what's the purpose of me actually being here? Well, I'm the CEO. Everyone's listening to me right now. I'm not the CEO anymore. Sure, I think people I think I'm a good person. I think they're gonna like me, but I'm not gonna be a part of this. And there's these things that's it's almost like our body feels that certain things are real. But they don't exist for the same breedings that we feel that they exist for. Me being at that table, it's because I'm the CEO. Those guys aren't my family. And so I think what you just said, I think what entrepreneurs can do is try to feel that. Try to sit there and think about at some point, I'm not going to be in charge here anymore. What does this feel like to me? No one does that until they actually find themselves into it. In but it's an interesting exercise to start doing. In advance to understand how that actually impacts you. And some guys, by the way, don't care. I'm gonna be honest, there's a spectrum of people. And I think a lot of it has to do with how secure bases are formed, how you know how we attach to other humans, so on and so forth. There are some guys who are virtually psychopaths who are just like, give me the money and I'm out of here, and I don't give two shits about what happens to these people. And that's okay. That's not me, that's not you, but that's how they are, and that's it is what it is. So and it takes all kinds though.

52:36 Dan Leibrandt

Hmm. Dang. That no, that that is so powerful. I and one more thing I wanted to make sure to ask you, Paul, before we wrap up here is you have talked with and worked with some of and almost all of the biggest pest control companies in the world. What have you learned from these owners and these big operations? What are they doing different that the small guys can learn from?

53:03 Paul Giannamore

I'm gonna try to say something that's not cliche. I think that for me. The really effective leaders. When I always and I talk to the Julios about this, I bifurcate a manager from a leader, right? And I think about a leader as somebody that can has a b vision, dares the team, and can really inspire action. And I find that those people, tend to be relatively humble, meaning when I look across the industry and I have conversations like I have just last month I had lunch with Jerry Gahlhoff, who's the CEO of Rollins. And then the very next morning, I had breakfast with somebody that owns a five million dollar pest control business. The guy I had breakfast with knows far more than Jerry does. And Jerry's at the home of Rollins. And what I mean by that is businesses that tend to stay small, if it's not a s explicit choice of the owner, if the owner actually wants to grow and it's small, it's usually because the owner believes he knows far more than he does. He's not particularly humble, he's not focused on his own skill set. The older that I get and the deeper I get into things, the more I realize I don't know. And I used to have a hard time years ago saying I don't know something. And I think that maybe f made me feel inside that I wasn't as smart as I had hoped that I was. But right now I find it very easy and sometimes too easy to say, I really don't know, but I would like to figure that out. And I think when you yourself, Dan, run into owners, you could tell the ones who are curious. You can tell the ones who are humble. You can tell the ones who are willing to actually question how they view the world. I would challenge people to be very flexible with how you view things, come up with a hypothesis, but test it. Far less than you think you do. I know far less than I think I do.

55:20 Paul Giannamore

And it took me a long time to learn that. And I think people that learn that and are willing to be curious and are willing to open themselves up and saying maybe there's a better way to do this. I'm gonna try to find somebody who's done this before or somebody who's smarter than me. I think those are the guys who really succeed. And so certainly at the top of some of these big companies, you see a lot of people with big egos who are total dicks. But when it really comes down to it, I have great respect for Jarl, who was the CEO, he's the chairman of Anticimex, and I've seen him a over a dozen times in Stockholm and I've interviewed him on the Buzz. He was simultaneously a very, Jarl has an ego, no doubt about it, but he was also always very curious and humble and willing to listen to people, even if it was the guy mopping the floor, to give him advice on maybe there's a better way to do something. I'm not even sure what you your question was but I think the distinction between what I see some from one of these these premier organizations, I think what everyone listening to this can learn is just be a little bit more humble, be more curious, be more open, be far more willing to test and challenge your own assumptions. I think everyone can benefit from that, actually.

56:40 Dan Leibrandt

Mm. I love that. I've totally noticed that myself. That the owners I see growing the fastest are usually the ones that not even are willing to learn, but become obsessed with learning and are just taking in as much information as possible, investing in themselves, and just figuring out a way to make it happen instead of the guys I usually see that get stuck, like you said, are the know-it-alls. They I've tried that, I've done that before. Why would I listen to that guy? He's never done anything, whatever. I think it's kinda cliche like you said, but you need that that growth mindset.

57:18 Paul Giannamore

Yeah. Man, I would I'm very happy with the course of my life, but I think I would be in a in a much better situation had I not drank my own Kool-Aid, thirty years ago, right? If I really had learned those lessons earlier. So I challenge everyone listening to do that.

57:36 Dan Leibrandt

Awesome. And last question I have for you, Paul, which I guess could maybe even tie to the answer you gave there, but I also wanted to ask, what is your message to the pest control owners out there? What do you want to tell them? What do you think they need to know?

57:51 Paul Giannamore

Ooh, man. Dan, I don't know if this is the most important message to convey in twenty twenty six, but it's something I was thinking about recently on my travels. As an entrepreneur, as an owner of any business, but we're gonna talk specifically right now about pest control. It's like you have a immense privilege to actually be able to design an organization. Do it. Be deliberate about how you wanna design an organization. Think about how you behave as an owner. Think about your standards, your principles. Think about how you at your firm want your team members to interact with each other and really put a lot of thought in how you want your team members to interact with customers in the public. Because, from a cultural perspective, this really does stem from you as the owner. And what I have found over the course of my career is there is a very big difference in an organization that is very deliberate. In establishing culture and standards and principles versus one that arises spontaneously. And I would say more times than not, in this industry and probably every industry, businesses grow. Owners one day have one employee and then five years later they wake up with 20 employees and they're like, holy shit, I don't even know how that happened. And then they wake up five years later and there's 50 employees and they're like, I can't believe little me I was just a technician. I never thought I was going to own a business doing 20 million in revenue. And that journey is exciting. But throughout that journey, I think sometimes the chaos, the fog of war, you're not thinking about how you're going to deliberately build that organization. And I think it's important, whether it be monthly or once a year, I always advise people to take some time, try to get away. For three days, even on your own, and think about what it is that you are designing. What does the end goal look like here? What think about your own trajectory as a human being? What's important to you in your business? What's important to you above and beyond your business? How do you want to remember yourself? Forget about your legacy to other people because you're going to be dead. Who gives a shit? But what's important to you and how do you want that to transcend the organization?

1:00:27 Paul Giannamore

I know this almost sounds silly, and I think maybe 20 years ago I would never I wouldn't have uttered these sorts of words. But I think for me it's just repetitive, seeing patterns over time and asking questions and being curious why does this business operate this way versus this business operating that way? And I think a big distinction for me is a leader at the helm of the business who tends to be the entrepreneur, the founder, who was very deliberate about the organization he wanted to build. So I think that's something important for people. And I would challenge listeners to think about that in twenty twenty six.

1:01:06 Dan Leibrandt

Love that. Deliberately build your organization. Paul, thank you so much for coming on the show. This has been great. You are truly a Pest Control Legend. You live up to the show's name. Where can people find you and connect with you and your company?

1:01:14 Paul Giannamore

Right on. Yeah, you can always find me on LinkedIn or our website is Potomac the river, P O T O M A C Company dot com. Track us down. We're happy to help you any way we can. I like to be a resource to the industry. So never hesitate to track me down.

1:01:36 Dan Leibrandt

Awesome. And anything else you'd like to plug or promote?

1:01:40 Paul Giannamore

I think that's it for today.

1:01:41 Dan Leibrandt

Awesome. Well, thanks again so much for coming on, Paul. This has been a blast.

1:01:45 Paul Giannamore

Awesome. Thanks so much, Dan. I appreciate it. It was great seeing you back.

1:01:48 Dan Leibrandt

Of course, you too. YouTube has this crazy feature where its algorithm knows the perfect next episode you should watch. So click right here and watch it now. Just click it. Click, click, click.