'The Combination Of Rentokil And PCI Will Create A World-class Company'

Andy Ransom, chief executive officer, Rentokil and Anil Rao, chairman, PCI spoke to BW Businessworld's Munnish Puri & Clifford Alvares after the former acquired a 57 per cent equity stake in the latter. The joint venture was announced earlier today and the combined revenues of both these firms' India operations are now at Rs 450 crore. Post the announcement of the joint venture, the Rentokil stock (LON: RTO), which is listed on the London Stock Exchange was up over 1.7 per cent and the company's market capitalization stood at GBP 4.37 Bn.

What are the unique characteristics of the pest control business in India? Why is Retnokil investing substantially into India through its joint venture with PCI?
Andy: Pest control is a remarkable industry, even after being around forever, it is still growing at 4-5 per cent per annum globally. In India, it is growing at approximately 15 per cent per annum.

Various aspects within India, such as the climate (hot weather) and also the demand for prevention of pests and the burgeoning middle class population along with a focus on efficient hygiene standards is creating a good demand for pest control companies.

In 2016, Rentokil spent GBP 107 Mn on making investments in 41 companies. In 2017, the company has a corpus of GBP 150 Mn to invest into viable companies.

PCI is the best investment choice in India and the company has been operating in the country for a long time. The company also has a great brand name and its business has been growing successfully. Incidentally, N.S. Rao, the founder of PCI trained at Rentokil in the U.K. in the 1950s.

Rentokil seeks to have joint ventures with companies that have a top quality management team and also an effective working culture. We believe that the combination of Rentokil and PCI will create a world-class company.

Anil Rao will be the Chairman of the joint venture company and we are delighted to see him take the company to new heights.

For PCI, what is the key driving force for enabling the joint venture with Rentokil?
Anil: Today, technology drives every industry and ours is not devoid of that. We have been trying to look for ways to incorporate technology in our business. But the point is that the scale at which we operate, we need to get things right the first time around itself.

Rentokil has mature technological prowess and equipment, which has been effectively tested and implemented globally. Secondly, they have world-class management. In fact, in the year 2016, Rentokil was voted the 25th Most Admired Company in Britain (Management Today). It leads through the technical ability of its people, leadership in innovation and digital, and the quality of its products and services. The company operates in over 60 countries.

To date, PCI has grown organically but managing growth and managing people in the same way to meet the kind of expectations clients come up-with is becoming more of a challenge. So the question was how long it would take to evolve and would it be worthwhile? Therefore, the best option was to form a joint venture with a world-class company like Rentokil. We will now collectively operate from 250 locations and employ 6,900 people.

Will the capital that Rentokil is investing in the joint venture be invested into the combined entity or will the Rao family also use some of the proceeds to cash-out?
Anil: Since we are going forward as join venture partners, this is a combination of both. However, if further investments are required, which it will, we will then also reinvest again. So it is not about cashing out and going into the sunset. If that were the case, we would sell out.

EY has been the exclusive advisor on the aforementioned transaction. Says Ajay Shah, "It's a unique cross-border deal combining the world's largest pest control player with the leading Indian player. This is a highly synergistic deal where the JV will function on Rentokil's technology and global innovation and on the back of PCI's strong market presence and a 60 years old heritage, creating a dominant pest control entity."