UPDATE 1-Rentokil buys $425 mln U.S. pest control business Steritech

Tue Sep 1, 2015 3:44am EDT
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(Adds CEO, analyst)

By Li-mei Hoang

LONDON, Sept 1 (Reuters) - British support services company Rentokil Initial has continued its North American expansion with its biggest deal in 10 years, agreeing to buy pest control business Steritech for $425 million.

Rentokil said the deal, which is subject to regulatory approval, strengthens its position as the No.3 pest control business in a U.S. market worth about $7.5 billion.

Revenue from Rentokil's North American operations now account for $800 million, making it the biggest operation in the group, the company added.

"It is going to drive our revenues more aggressively and really give us an opportunity to improve our North American margins significantly," Chief Executive Andy Ransom said of the Steritech deal.

Rentokil, which offers services from pest control to the supply of workwear, has made about 40 acquisitions in the past 18 months, 20 of which were in North America.

The group's shares were up 1.4 percent at 150 pence at 0735 GMT, roughly in line with the mid-cap FTSE index.

"The market is likely to be neutral on the deal until the earnings improvements start to come through, though clearly at such rates the deal is earnings-enhancing from the start," said Stephen Rawlinson, analyst at brokerage Whitman Howard.

"It also begs questions about future disposals at Rentokil, given the clear strategic intention to be a global leader in pest control." (Editing by David Goodman)