What does Peltz want from Rentokil?

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“Does Nelson Peltz understand termites?” is a question we’d not thought to ask before today. Per MainFT:

Shares in Rentokil surged more than 15 per cent on Wednesday after it emerged that activist investor Nelson Peltz’s Trian Partners had taken a stake in the world’s largest pest control company.

The shares were the biggest gainers on the FTSE 100, driving Rentokil’s market capitalisation to £11.9bn.

The London-listed group has struggled in recent months with a slowdown in demand in the US, which accounts for more than half its sales following its $6.7bn acquisition of Terminix in 2021.

Trian said that it has a “significant position” in Rentokil, making it a top-10 shareholder. It “has reached out to Rentokil to discuss ideas and initiatives to improve shareholder value,” the firm said, adding that it “looks forward to working with Rentokil’s leadership team”.

The most obvious thing to do with Rentokil is to relist it in the US, where there’s a big valuation gap with closest peer Rollins and smaller rivals like Citra and Ecolab. But the valuation gap partly reflects Rentokil’s recent loss of market share to those companies. It’s not just a UK market thing.

US pest control grew 3.1 per cent organically for Rentokil in 2023, versus 8 per cent growth for Rollins. For 2024, Rentokil has guided for organic growth of 2-4 per cent, which would be below its long-term estimate that the US market has been growing at 4.3 per cent a year.

America’s pest control sector is fragmented and locally segmented, and Rentokil is a decentralised organisation that was built by acquisition. It still has around 80 brands in the US, nearly all of which are not wanted, so there’s a lot of rebranding required before its strategy of promoting Terminix as the answer to any infestation can pay off.

Before Peltz showed up, Rentokil investors had written off 2024 as a transition year. Management warned with 2023 results that full integration of Terminix had been pushed back by a year to 2026, so its employees don’t get much in the way of job security.

In addition to the rebrandings, there’s a round of US branch closures, with 125 to be shuttered by 2025 as part of a strategy to create regional Terminix offices that generate $8-10mm in revenue per annum. It’s ambitious and atypical: Rollins prefers a tiered structure where local offices aim to do just $3mm a year.

Rentokil management spent last year arguing that slowing growth was on weaker consumer demand that was much less apparent in rivals’ results. Investors have preferred to see its problems as self-inflicted by ambition so, awaiting proof that the Terminix restructuring will work, the stock had been trading at about 10 times 2025 ebitda. It’s a huge discount to Rollins’ rating of about 27 times 2025 ebitda but given the scale of the job it’s hardly an irrational one.

So. What does Peltz want done better? Breaking up Rentokil might help focus some minds and clear some desks. About 20 per cent of group revenue comes from a hygiene division and a French workwear business that gets little attention from investors.

Another possibility would be that he will encourage a takeover bid, Cadbury style. Pest control is too fragmented a market globally for a merger to raise significant antitrust concerns and private equity firms have been rolling up smaller operators, including the UK arm of Terminix. But any buyer would be inheriting the same problems faced by long-serving Rentokil CEO Andy Ransom, so it’s hard to argue for a dramatically higher valuation.

Rentokil’s historic US market share of about 27 per cent means it has a #1 position in US pest control and its North America business accounts for about 63 per cent of revenue. There are good reasons why Rentokil might be a better fit in New York than in London, but the relocation maths is not as simple as transplanting the high valuations given to its peers. Peltz has a good record for spotting hidden value, but what he knows about killing termites is unproven.