Pest Control M&A Glossary
Plain-language definitions of every term you'll encounter when selling or buying a pest control business. No jargon, no filler.
A
Add-Back
An expense that is added back to net income when calculating SDE or EBITDA because it is discretionary, personal, one-time, or non-cash. Common add-backs in pest control include owner salary, personal vehicle, health insurance, depreciation, amortization, and one-time legal or equipment costs. Add-backs must be documented — undocumented add-backs are typically rejected by buyers and lenders.
See also: SDE, EBITDA, Adjusted EBITDA
Adjusted EBITDA
EBITDA that has been modified to remove one-time, non-recurring, or owner-specific expenses. The standard basis for valuing pest control businesses with management teams. Different from SDE in that it does not add back the owner's full compensation — only the portion above what a market-rate manager would earn.
See also: EBITDA, SDE, Add-Back
Asset Sale
A transaction structure in which the buyer purchases specific assets of the business (customer list, goodwill, equipment, vehicles, licenses) rather than the business entity itself. Asset sales are the most common structure for pest control transactions. Buyers prefer asset sales because they don't inherit prior liabilities. Sellers often prefer stock sales for better tax treatment.
See also: Stock Sale, Purchase Price Allocation
Attrition Rate
The percentage of a business's active account base that cancels service in a given period (usually annually). Critical valuation metric in pest control. Under 10% attrition is considered excellent; 10–15% is standard; above 20% is a red flag that will reduce multiples and may trigger earnout structures. Also called 'churn rate.'
See also: Recurring Revenue, SDE, Earnout
B
Broker Opinion of Value (BOV)
A written estimate of a business's market value prepared by a business broker based on financial review, market comparables, and business analysis. A BOV is not a formal appraisal (which is required for SBA loans) but is typically used for initial seller education and deal marketing. HedgeStone provides free BOVs for pest control business owners.
See also: SDE, EBITDA, SBA Appraisal
Buyer's Due Diligence
The investigation and verification process a buyer undertakes after an LOI is accepted. Includes reviewing financial records, customer data, licensing, equipment, employee records, and legal history. Typically runs 30–60 days in pest control transactions. Material discrepancies discovered during due diligence may result in offer reductions or deal withdrawal.
See also: LOI, Exclusivity Period, Purchase Agreement
C
Closing
The final transaction event at which the purchase agreement is signed, funds are transferred, and ownership of the business legally changes hands. Pest control closings typically involve wire transfers and are handled remotely. Closing follows the completion of due diligence, legal document preparation, and (for SBA deals) lender funding.
See also: Purchase Agreement, LOI, Transition Period
Confidential Business Review (CBR) / CIM
A detailed marketing document (10–40 pages) that describes the business being sold, including financial performance, service mix, customer demographics, route structure, and growth opportunities. Released only to qualified buyers under NDA. The CIM is the seller's primary marketing document in the M&A process. Also called a 'Confidential Information Memorandum.'
See also: NDA, Teaser, Due Diligence
D
Debt Service Coverage Ratio (DSCR)
The ratio of a business's cash flow to its debt service obligations. SBA lenders require a minimum DSCR of 1.25x — meaning the business must generate at least 25% more cash flow than needed to service the acquisition loan. A business with $300K SDE on a $1.5M acquisition (10-year SBA loan) would need to cover roughly $155K in annual debt service, producing a DSCR of approximately 1.94x — well above the threshold.
See also: SBA 7(a) Loan, SDE, Seller Note
E
Earnout
A portion of the purchase price that is contingent on future business performance after closing. Common in pest control when buyers and sellers disagree on valuation, or when a buyer wants protection against revenue attrition. Typically tied to revenue retention or EBITDA targets over 12–36 months. Risky for sellers — the earnout amount depends on performance metrics after the seller no longer controls operations.
See also: Purchase Price, LOI, Deal Structure
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. The standard profitability metric for larger pest control businesses ($2M+ revenue) with management teams. EBITDA does not include the owner's compensation add-back (unlike SDE). PE buyers and institutional buyers value businesses on EBITDA multiples (typically 6x–10x for pest control). EBITDA multiples are higher than SDE multiples because they reflect a business that can operate independently of the owner.
See also: SDE, Adjusted EBITDA, Add-Back
Exclusivity Period
The period after LOI acceptance during which the seller agrees not to negotiate with other potential buyers while the selected buyer completes due diligence. Typically 45–90 days in pest control transactions. The exclusivity period is negotiable — shorter exclusivity periods are better for sellers, as they limit the opportunity cost of the selected buyer walking away.
See also: LOI, Due Diligence, NDA
G
Goodwill
The portion of purchase price attributable to intangible assets — customer relationships, brand reputation, and going-concern value — beyond the fair market value of hard assets. In pest control, goodwill is typically the largest component of the purchase price. Goodwill is taxed as long-term capital gain in an asset sale (favorable) vs. ordinary income for some other asset classes.
See also: Asset Sale, Purchase Price Allocation, Capital Gains Tax
L
Letter of Intent (LOI)
A non-binding document from a buyer outlining the proposed terms of an acquisition, including purchase price, deal structure, due diligence period, and exclusivity period. An LOI signals a buyer's serious intent and starts the formal due diligence process. While mostly non-binding, some terms (exclusivity, confidentiality) are typically binding.
See also: Due Diligence, Exclusivity Period, Purchase Agreement
M
Management Carve-Out
A transaction where a management team purchases equity in the business they manage, often from a selling owner or PE firm. Less common in small pest control businesses but relevant in larger platform deals where the general manager or operations director acquires an ownership stake.
See also: Rollover Equity, Management Team
Multiple
The factor applied to SDE or EBITDA to determine a business's value. Example: a business with $400K SDE selling at a 5x multiple = $2M purchase price. Multiples in pest control range from 2.5x–7x SDE and 5x–10x EBITDA depending on service type, recurring revenue percentage, buyer type, and business quality.
See also: SDE, EBITDA, Recurring Revenue
N
Non-Disclosure Agreement (NDA)
A legal contract between buyer and seller requiring confidentiality about the business's identity, financials, and sale process. All buyers must sign an NDA before receiving the full CIM in a pest control sale. NDAs typically run 24–36 months and restrict the buyer from sharing information with third parties, contacting the seller's employees, or using information to compete.
See also: CIM, Teaser, Exclusivity Period
P
Per-Account Value
A valuation method that prices each customer account individually based on service frequency and revenue. Monthly recurring pest control accounts: $400–$600. Quarterly accounts: $175–$275. Termite bonds: $900–$2,000. Used primarily for route acquisitions (where the business entity isn't changing hands) and as a cross-check on SDE-based valuations.
See also: Route Acquisition, Recurring Revenue, SDE
Purchase Price Allocation
The breakdown of the total purchase price among different asset classes — goodwill, customer list, non-compete, equipment, vehicles, inventory. The allocation matters for tax purposes: goodwill is taxed as capital gains; equipment is subject to depreciation recapture at ordinary income rates; non-compete payments are typically ordinary income to the seller. Negotiated in the purchase agreement.
See also: Asset Sale, Goodwill, Capital Gains Tax
R
Recurring Revenue
Revenue that repeats on a predictable schedule without requiring re-selling — monthly or quarterly pest control service contracts are the primary form. Recurring revenue is the most important valuation driver in pest control M&A. Businesses with 70%+ monthly recurring revenue consistently achieve the top end of their applicable multiple range. Buyers value recurring revenue 3x–4.5x vs. 0.1x–0.4x for one-time jobs.
See also: Attrition Rate, MRR, SDE Multiple
Rollover Equity
A deal structure in which the seller retains an equity stake (typically 10–30%) in the newly acquired or combined business rather than cashing out fully at close. Common in PE platform acquisitions. The seller effectively trades a portion of the current sale proceeds for a future 'second bite' when the PE firm exits the combined platform. Rollover equity can produce large returns if the platform grows — or nothing if the platform underperforms.
See also: PE Platform, Earnout, Deal Structure
S
SBA 7(a) Loan
The primary government-guaranteed loan program used to finance pest control business acquisitions. Allows buyers to acquire a business with 10–15% down payment, with the SBA guaranteeing up to 75–85% of the loan. Maximum loan amount: $5M. Typical term: 10 years. Interest rate: prime + 2.25%–2.75%. SBA deals require an independent appraisal, DSCR of 1.25x+, and clean seller financials.
See also: DSCR, Seller Note, SDE
SDE (Seller's Discretionary Earnings)
The primary valuation basis for pest control businesses under $3M in revenue. Calculated as: Net Income + Owner W-2 Salary + Owner Benefits (health insurance, vehicle, phone) + Depreciation + Amortization + Interest + One-Time Add-Backs. Represents the total economic benefit available to one full-time working owner.
See also: EBITDA, Add-Back, Multiple
Seller Note
When the seller accepts part of the purchase price as a deferred payment rather than receiving all cash at closing. The buyer pays the seller back with interest over a defined period (typically 3–7 years). Often required by SBA lenders. Carries risk to the seller — payment is dependent on the new owner running the business successfully. Interest is taxable as ordinary income.
See also: SBA 7(a) Loan, Deal Structure, Earnout
Stock Sale
A transaction structure in which the buyer purchases the ownership interest (stock or membership units) of the business entity rather than individual assets. All assets and liabilities transfer with the entity. Stock sales are preferred by sellers for tax treatment (all proceeds typically taxed as capital gains) but are preferred less by buyers who take on all prior liabilities. More common in larger deals and PE transactions.
See also: Asset Sale, Capital Gains Tax, Purchase Price Allocation
T
Teaser
A brief, anonymous marketing document (1–2 pages) that describes a business for sale without revealing its identity. Used to gauge buyer interest before NDA execution. Includes approximate revenue, geography region, service mix, and a few key financial metrics. Also called a 'blind summary' or 'anonymous executive summary.'
See also: CIM, NDA, Confidential Sale
Transition Period
The time after closing during which the selling owner remains involved in the business to transfer knowledge, introduce customers, train staff, and assist the new owner. Pest control transition periods typically run 30–90 days of active involvement, plus 6–12 months of consulting availability. Transition terms are negotiated in the purchase agreement.
See also: Closing, Non-Compete, Purchase Agreement
W
WDO (Wood-Destroying Organism) Inspection
A state-regulated inspection for termites, wood-boring beetles, and other wood-destroying organisms. WDO inspections are required in most real estate transactions in termite-active states. Pest control companies offering WDO inspections must have licensed inspectors. WDO inspection revenue is typically one-time, not recurring — unless paired with a termite bond.
See also: Termite Bond, Licensing, Recurring Revenue
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