Rentokil Initial Plc

1902–2001

Rentokil Initial Plc is one of the world's leading services companies operating in seven primary areas: Hygiene, including linen supply services, the company's largest division, providing 31 percent of sales; Security, the second largest segment, with 23 percent of sales; Facilities Management; Pest Control, the company's historical base of operations; Tropical Plants rental and maintenance; and Conferencing. Together these activities generated nearly £2.24 billion in sales in 2001. The United Kingdom remains the company's headquarters and single largest market, at 51 percent of sales. The rest of Europe adds 29 percent of the company's sales, while Rentokil Initial's North American activities generate about 13 percent of sales. The company is also active in the Asia/Pacific region, where the company hopes to focus its future growth. Rentokil Initial's growth has long been led by CEO Clive Thompson--known as "Mr. 20 Percent" for his longtime insistence that Rentokil grow at least 20 percent per year. Since the late 1990s, however, the company has abandoned that target, settling for growth rates of just 15 percent and lower. In order to counter its slumping margins, the company, which claimed to have made more than 300 acquisitions since the early 1980s, began shedding a number of its noncore operations, including its plant hire, temporary staffing, and distribution operations. The sell-off, which slashed some 30 percent of the company's turnover, generated more than £620 million and has provided the company with a strong war chest to pursue growth in its chosen markets. Among its acquisitions at the turn of the century was the purchase of Ratin A/S, which held 32 percent of Rentokil Initial's stock. Much of its acquisition interest has gone toward bolt-on purchases, including 12 businesses in 2000. Rentokil Initial is traded on the London Stock Exchange and on the U.S. OTC market.

Exterminating Origins: Early 20th Century

Rentokil Initial was the result of the hostile takeover by Rentokil Plc of far larger BET, and its Initial brand name, in 1996. Both companies traced their roots back to the turn of the 20th century and had established themselves as leaders in their respective markets. The merged company, renamed Rentokil Initial, combined Rentokil's expertise in pest control services and its 1990s foray into security services with BET's broader base of business services, including linen rentals, cleaning, and catering.

Rentokil's origins lay in pest control. In 1902, Georg Neumann, a pharmacist working in Aalborg, Denmark, developed a type of bacteria that proved to be deadly for rats and mice. Neumann dubbed his poison Ratin and set up his own company, Bakteriologisk Laboratorium Ratin, in 1902. Neumann's discovery soon caught the attention of the Sophus Berendsen company, which decided to introduce the poison to the British market as well as the other Scandinavian countries. The first U.K. sales office for Ratin opened in 1906 and proved a popular product, for which Sophus Berendsen retained the exclusive U.K. license. In the 1920s, the British arm took on greater importance and began moving toward providing pest control services, rather than simply selling the Ratin poison system. In 1927, the sales office incorporated as the British Ratin Company, led by Karl Gustav Anker-Petersen. In 1928, Petersen abandoned sales of Ratin and converted the company fully to pest control services, beginning the company's expansion throughout the United Kingdom.

World War II and the scarcity of food stocks brought a new urgency to the pest control industry, and particularly the extermination of insects. As growing numbers of its customers began requesting insect control services in addition to the company's rodent control services, British Ratin branched out, acquiring Chelsea Insecticides Ltd. to inaugurate its new division. This move brought British Ratin in competition with another company, Rentokil Ltd.

Rentokil had been founded in 1925 by Harold Maxwell Lefroy. As a professor of entomology at the Imperial College in London, Lefroy had been asked to find a way to eliminate a death watch beetle infestation at Westminster Hall. Lefroy, assisted by Elizabeth Eades, came up with a formula in 1924, dubbed "Ento-Kill." Since a similar name had already been registered as a trade name, Lefroy instead named his insecticide Rentokil. The following year, Lefroy started up a business, Rentokil Ltd., to sell his preparation. Lefroy, however, was killed in a laboratory accident the following year, and the company's operations were taken over by Eades.

Rentokil had been founded in 1925 by Harold Maxwell Lefroy.

1952–1991

Rentokil began offering its own extermination services during World War II, focusing on woodworm and dry rot control. That segment was incorporated as a separate subsidiary, the unglamorously named Woodworm and Dry Rot Control Ltd., established in 1952. By then, British Ratin had begun expanding its insecticides division, establishing a dedicated subsidiary, Disinfestation Ltd. At the beginning of the 1950s, that company began preparing a move into the market for control of woodworms, launching its first treatment products in 1952.

British Ratin, which still counted Sophus Berendsen as its major shareholder, acquired Rentokil Ltd. in 1957. Yet it was the Rentokil name that was to carry on the company's banner. In 1960, the company reorganized, adopted the new name of Rentokil Group Ltd. By 1962, all of the company's U.K. operations had been rebranded under the single Rentokil Ltd. name.

Going Public, Moving Beyond Pest Control: 1969

Rentokil went public in 1969. The public offering enabled the company, which until then had specialized in pest control, to branch out into other services. Soon after its stock market listing, Rentokil acquired Rashbrooke Chemical Co., forming the basis of Rentokil's Hygiene division. The following year, the company paid £1 million to acquire another hygiene services business, Thames Services. Meanwhile, Rentokil continued to invest in its pest control systems and during the 1970s succeeded in establishing itself as the U.K. leader in the sector. By then, too, Rentokil had succeeded in extending its reach beyond the United Kingdom, beginning with Australia in 1965, and built up an especially strong position in the European market. Pest control and hygiene services were to remain the core of the company's offerings until the mid-1990s; however, during the 1980s, the company began to branch out into a variety of diversified services offerings.

The company had rested on its laurels somewhat during the 1970s, which led to the ouster of its senior management at the beginning of the 1980s. Placed in charge of the company was Clive Thompson, then 40 years old, who started with the company as a director before being named chief executive officer in 1983. Thompson took Rentokil on an acquisition spree, pledging to achieve a per-year growth rate of 20 percent or more--the pledge was to earn him the moniker of "Mr. 20 Percent" for years to come. Over the next decade and a half, Rentokil made some 300 acquisitions, taking the company into a variety of new areas, such as tropical plant rental and maintenance; office machinery and equipment maintenance; office cleaning services; healthcare, including washroom services; and distribution.

In 1991, the company moved into textile and industrial laundry services by acquiring that division from Electrolux, of Sweden. Two years later, Rentokil moved into the security services sector with its £76 million acquisition of Securigard, which also marked the company's entry into the parcels delivery sector with subsidiary A to Z Parcels. The Rentokil name now represented a wide variety of business services--yet the name's connotations tended to form a handicap for entry into a number of business sectors.

1903–1998

Rentokil solved that problem in 1996 when it launched a hostile takeover of BET, a business services company three times its size. As Rentokil had diversified into new business areas, BET had become an increasingly tough competitor. Formerly known as British Electric Traction Company, founded in the 19th century, when it had been one of the United Kingdom's foremost transportation services providers, BET had transformed itself into a diversified business services provider. In the 1930s, BET had started up a laundry services wing, called Advance Services; the company also acquired a shareholding in a small towel services company, Initial Towel Supply.

New Initials for the 21st Century

Initial had been started by A.P. Bigelow, an American living in England, in 1903. Bigelow not only rented towels, a novelty at the time in London, he also adopted a policy of personalizing towels--so that each towel belonged only to a single customer. Bigelow began placing customers initials on the company's towels, and soon adopted the name Initial Towel Supply Company. Initial went public in 1928, and Bigelow returned to the United States.

Following World War II, Initial achieved strong growth, and succeeded in establishing itself as the United Kingdom's leading linens rental company. Initial also branched out internationally, spreading throughout Europe and into the United States as well as Australia. BET, meanwhile, continued to develop its own linen services wing, along with a growing variety of business services. That company also steadily increased its shareholding in Initial, building up a 40 percent stake by the mid-1980s. In 1985, BET launched a full-fledged takeover of Initial, then merged its Advance Services subsidiary under the Initial brand name.

BET ran into trouble by the end of the 1980s, however, as its debt blossomed to more than £600 million. By the time the recession of the early 1990s was underway, BET was floundering, sinking into losses by the beginning of the decade. In 1991, BET brought in a new CEO, John Clarke, who struggled to restore the company's health. Yet its stock price remained low, leaving it open to Rentokil's hostile takeover in 1996.

The controversial BET takeover--a number of analysts questioned the possible synergies of the merger--tripled Rentokil in size and gave it operations in a number of new areas. It also gave the company the strong Initial brand name, which Rentokil promptly added to its own, renaming the company Rentokil Initial Plc that year. CEO Thompson had more than made good on his promise to achieve at least 20 percent growth that year. Nor was Rentokil's quest for growth undiminished: by 1997, the company was back on the acquisition trail, adding the textile services divisions of France's Generale des Eaux, itself in the process of transforming into Vivendi Universal. The company continued its acquisition drive through 1998, adding ten more companies to its various services divisions.

1999–2002

Yet the BET addition saddled Rentokil Initial with a number of BET's underperforming, low-margin businesses, which in turn dragged down Rentokil Initial's overall picture--by 1999 Thompson was forced to face public humiliation as he revealed that Rentokil was unable to meet its 20 percent growth target that year. Thompson now faced public derision as "Mr. Substantially Outperform," as Rentokil Initial formally dropped its longtime 20 percent per annum growth targets.

Rentokil Initial took the axe to itself at the end of the century, redefining its core business areas and shaving off a number of its newly noncore activities. By the end of 2001, the company had succeeding in raising more than £620 million in a series of selloffs that had trimmed nearly 30 percent of the company's annual revenues as well. Boasting a war chest in excess of £1.5 billion, Rentokil Initial nonetheless showed no signs of slowing down in its acquisitions. Throughout 2001, the company added a series of some 18 bolt-on acquisitions, including a number of companies in the Asian market countries, where Rentokil Initial hoped to see strong future growth. The company also moved to make its stock more liquid: after longtime shareholder Sophus Berendsen, which itself had grown into a leading Scandinavian textile services company, spun off its 32 percent of Rentokil Initial into a dedicated holding company, Ratin A/S, Rentokil Initial moved to acquire that company, ending the two companies' long relationship.

Thompson announced his intention to step down as chief executive at the end of 2002, taking on the position of non-executive chairman instead. By then, too, Rentokil Initial expected to have completed its restructuring around a new, more limited core of business services.