A New Chapter

Mergers and acquisitions have played a prominent role in the pest control industry’s business landscape for much of the past decade, but product distribution has been largely immune to this trend, in part, because the universe of companies serving this highly specialized, vertical market segment is relatively modest.

So, when the industry’s largest distributor, Univar Solutions Environmental Sciences, was sold to a leading private equity firm in the final days of 2019 for $195 million, that’s big news. AEA, based in New York City, has deep roots in the manufacturing, distribution and specialty chemicals markets, with initial capital funding for the company coming from such well-heeled families as Rockefeller, Mellon and Harriman, iconic names of America’s Gilded Age.

As a company with such an impressive family pedigree, it’s no surprise they would partner with a mid-market firm that celebrates its own storied family history. In fact, it’s what initially attracted Trace McEuen, a 40-year veteran of the pest control industry, to AEA, which owns such well-known brands as Spectrum Plastics Group, Melissa & Doug, and Jack’s Family Restaurants, just to name a few of its wide-ranging investments (see story below).

McEuen, CEO of Veseris, the newly minted company name, spent months vetting various private equity firms before selecting AEA, a solitary process requiring über-confidentiality due to the sensitive nature of the negotiations. “Initially, you’re on an island,” he said, “but over time I was able to bring more people under the tent.” During the stressful, yet exciting time leading to the sale, McEuen confided in his wife Tricia and a handful of Univar Solutions M&A specialists to provide advice, relying on the lessons learned from former mentors like Norm Ehmann, Bevan Cates and John Bolanos — all well-known names in the pest control industry — to guide his decision-making.

As a result of the acquisition, McEuen and Veseris are in the midst of writing a new chapter for the storied company, which first gained industry notoriety as Van Waters & Rogers under the impassioned leadership of Ehmann, the longtime vice president of professional products and services, and champion of industry education.

In announcing the sale to the marketplace in early January, McEuen said, “AEA has a deep understanding of the Environmental Sciences business and our future opportunities, including our ability to meet the growing demand in our existing and adjacent markets. As a standalone company, with the focused ownership and committed resources of AEA, we expect to be even better positioned to serve our customers and partner with suppliers as we drive growth and build on the momentum we already created at Univar Solutions.”

PCT recently had an opportunity to interview McEuen about the AEA acquisition and what it means for his company and the industry at large. Excerpts of that interview appear on the following pages with additional coverage online at www.pctonline.com.

McEuen: Univar very wisely retained the investment banking firm Piper Jaffray, which has deep ties to both venture capital and private equity. We ultimately decided to go the private equity route because it’s more of an investment-style model. Once we came to that decision, they set up a very sizeable interview list of private equity partners for us to consider. It gave all the parties an opportunity to get to know one another more thoroughly, so they could gain a better understanding of our business and we could gain a better understanding of their businesses. We basically boiled that list down to three finalists before deciding on AEA.

PCT: While AEA has a very diverse portfolio, it appears they have a strong industrial background, which we presume is a plus. Is that what you found particularly attractive about the company?

McEuen: It very much helped in their understanding of our business, but that’s not why we chose them. They really looked at our distribution model — and especially the way we go to market — as a positive. They’re not an organization that imposes their will on the companies they acquire. They hire the right management team. They hire the right people to support that management team and then they let them run the business. Obviously, we have deliverables like everyone else, but I think what they recognized is that with the right platform to expand our business, we’ll have a bright future for many years to come.

PCT: It must have been difficult to keep the negotiations under wraps?

McEuen: It was incredibly difficult because there were times when I was very excited about what the future may hold, and you want your team to be excited with you, but the negotiations are confidential. We weren’t even allowed to bring the executive team of our Environmental Sciences group under the tent until August, so there were a couple of months where you would have loved to bounce some things off your colleagues, but it just wasn’t an option.

PCT: Did you bring all the private equity firms to Austin once you got down to the final three or did you travel to New York City?

McEuen: We started the process by visiting companies in New York City, but when it finally got down to who we thought would be the best owners of our business, we invited them to Austin. We wanted to bring the key players to our corporate headquarters to make sure they understood our business and had a thorough understanding of our culture. It was a bit of a risk to do so before the deal closed, but we thought it was important because our people, without question, are our greatest asset. We have a vision and a plan for our business, but ultimately what AEA was investing in is our culture. You can talk about your culture all you like in a high-rise office building in New York City, but until you allow them to interact with everyone on your staff from credit coordinators and marketing professionals, to salespeople and customer support, they won’t have a true sense for what your company is all about.

PCT: How did you communicate the sale to your suppliers and end-users?

McEuen: Since Univar Solutions is publicly traded, we were under their timeline, so we couldn’t make the announcement until the acquisition went through the proper channels. Once that was accomplished, we informed our supplier partners and our customers at the same time. It was critical that I call suppliers to let them know of the change personally, and we also reached out to our end-user customers through the media and staff members in our ProCenters.

PCT: How did the various parties react?

McEuen: I looked at the acquisition as a historic change, but our suppliers and customers readily accepted it, viewing it as a regular part of business. There have been so many mergers and acquisitions in the pest control space in recent years, I guess everyone is becoming a bit immune to it. Most people asked, “Will I still have my current sales rep? Will I still have my current ProCenter?” Suppliers, of course, had quite a few more questions, which we readily addressed. So, while it wasn’t exactly the status quo, for most of the industry it was simply just another market change, nothing more, nothing less.

PCT: What do you think will be the biggest change moving forward under new ownership?

McEuen: As we have learned, when you’re carved out of a much larger business, there are some inevitable challenges. One of a number of things I will give Univar a tremendous amount of credit for — in addition to being a good employer for so many people over the years — is that they have worked very hard to make the transition go as smoothly as possible for both parties. It wasn’t a case of selling the business and walking away. They are in lockstep with us to make sure the transition goes smoothly.

PCT: The field of distribution is undergoing seismic changes as a result of online ordering; new, highly nimble competitors in the space; and mergers and acquisitions. Therefore, could you speak to some of the “macro” trends that may have played a role in the acquisition?

McEuen: Absolutely. When we looked at separating the business, I had the opportunity to talk to a lot of the senior folks at Univar, who provided me with some valuable insights. For us to grow in the current environment, we believed it would require an investment in the core foundation — or ERP — that drives our business. (Editor’s note: ERP is the acronym for Enterprise Resource Planning, any software system designed to support and automate the business processes of medium and large businesses.) When a large corporation goes with an ERP system like SAP, it sometimes makes it difficult for a company our size. You’re then faced with the question: How do you change a SAP model that works so well for an industrial giant like Univar, but doesn’t work as well for its smaller business units? So, it makes total sense for them to spin-off Environmental Sciences to concentrate on their core global chemical and ingredient business. With AEA, we now have an opportunity to build an ERP system that is state-of-the-art and transcends what we had before.

PCT: What other things will the acquisition by AEA allow you to do?

McEuen: It will allow us to identify new opportunities for future acquisitions. At Univar a potential acquisition had to meet a very sizable target to be considered. In our new business, however, we’ll be able to build on smaller acquisitions, as well as take on some larger acquisitions, without the challenges we experienced in the past. We’ll also be looking at some ancillary markets that offer growth opportunities.

PCT: Could you expand on that further?

McEuen: Our core will be always be the pest management industry, but there are other opportunities we’ll want to consider moving forward. We’re very comfortable with the pest control market and we understand it logistically as well as anyone. But I don’t want to limit our business to one sector. We must look at our business as having a tremendous logistics footprint with the ability to service multiple industries, using our ERP platform as the foundation for our growth.

PCT: Univar already has the largest market share of distributors serving the pest control industry. Realistically, how much can you grow in the future?

McEuen: Without question, we need to continue to increase our product portfolio in the pest control market to ensure we capture our fair share of all aspects of that business. So, I think there are some areas that we could do better, and we’re exploring how to do that even as we speak. But within that pesticide market umbrella — insecticides, herbicides, fungicides, etc. — there are other opportunities, particularly in the turf market. There are also untapped opportunities for us in Canada, where we’re the largest industrial vegetation management distributor. We have great ties to outstanding customers in Canada. How can we leverage those ties more effectively both in Canada and the United States to expand our market share and grow our business? Our public health business is doing incredibly well. In fact, it was the fastest-growing segment of our business in 2019. How can we continue to expand that market? All these different markets start to cross over, and that’s why we have to have an ERP platform that crosses all these boundaries and all the different markets available to us. The key to me, though, is making sure our customer and supplier interaction is seamless. Going forward, you will see us become very nimble at working with our customers for shared success moving forward.

PCT: Is there anything else you would like to address?

McEuen: One thing I would like to reinforce is that when you carve a business out of a larger entity that has been fully integrated for so many years, it’s not a trivial undertaking. And when you have 70+ ProCenters, it’s a very complex matter. So we’re working diligently to work through the integration process without losing touch with the most important part of our business, which is our customers, suppliers and the people in the field making it happen every day. That is what I reflect on at the end of the day. You don’t want to lose touch with what is truly important. We need to make sure that the field does not feel separated from the corporate office as we build this business for the future. That’s why we’re spending so much time and effort to make sure the transition goes smoothly. Like I’ve told our people, we all have these wonderful new job titles, but we’re still the same people. If I walk into a warehouse and they need someone to pull an order, I’m going to pull the order. We all may have different responsibilities or different job titles, but as long we maintain that core belief that we want to take care of each other and the business, we’ll be fine. That’s my promise.