Rentokil's Strategic Divestiture Signals a Pivot to Core Growth in the Safety Sector

The sale of Rentokil Initial's France Workwear business to H.I.G. Capital for €410 million marks a pivotal moment in the company's evolution. By offloading a non-core asset, Rentokil is sharpening its focus on its dominant Pest Control and Hygiene & Wellbeing divisions, which now account for 80% and 20% of its revenue, respectively. This strategic move not only simplifies operations but also positions the firm to capitalize on a booming safety and hygiene sector. For investors, this is a signal to act: Rentokil is primed to outperform as it leans into its core strengths.

The Divestiture: A Bold Move to Fuel Core Growth

The France Workwear division, which contributed just 6% of Rentokil's 2024 revenue, generated €324 million in sales last year but required significant capital expenditure ($93 million in 2024). By divesting this asset, Rentokil will redirect €370 million in net proceeds to deleverage its balance sheet, reinvest in its core pest control and hygiene businesses, and pursue bolt-on acquisitions. The transaction includes an earn-out clause, incentivizing performance in 2026—a clear alignment of interests with H.I.G. Capital.

This move underscores Rentokil's disciplined capital allocation strategy. CEO Andy Ransom emphasized the sale's role in “strengthening our position as a streamlined leader in core markets.” The company's pivot is no accident: since 2015, it has systematically shifted its revenue mix from 44% pest control to 80%, proving its ability to execute strategic repositioning.

Why the Safety & Hygiene Sector is a Growth Engine

The global safety and hygiene sector is poised for sustained growth, driven by:
1. Regulatory Stringency: Post-pandemic demand for hygiene solutions, stricter food safety protocols (e.g., HARPC compliance), and climate-driven pest control needs.
2. Structural Tailwinds: Rising urbanization, supply chain complexity, and consumer awareness of food safety risks are boosting demand for Rentokil's subscription-based services. Over 80% of its revenue comes from recurring contracts, shielding it from economic volatility.
3. Consolidation Opportunities: The pest control industry remains fragmented, offering targets for Rentokil's acquisition strategy.

Risks and Rewards: A Calculated Play

Critics may point to Rentokil's high debt levels ($4.7 billion in liabilities) or its current valuation discount to peers. However, the France Workwear sale reduces capital expenditure needs and improves free cash flow by 100 basis points, directly addressing these concerns. Meanwhile, the company's dividend yield of 2.71% and strong retention rates (85.5% over five years) reinforce its income-generating stability.

The earn-out mechanism also mitigates downside risk. H.I.G. Capital's willingness to tie payment to 2026 performance suggests confidence in France Workwear's value—a positive signal for investors.

Why Act Now?

Rentokil's stock trades at EV/EBITDA of 13.0x, well below its 4-year average of 17.4x. With an analyst consensus projecting a 28.6% upside, this is a rare opportunity to buy a leader at a discount. The France Workwear sale is not just a cost-cutting measure—it's a catalyst for reinvestment in high-margin, recurring revenue streams.

Conclusion: A Strategic Masterstroke with Long-Term Payoffs

Rentokil's divestiture is a masterclass in portfolio optimization. By shedding non-core assets and doubling down on its pest control and hygiene dominance, the company is primed to benefit from secular trends in food safety, climate resilience, and regulatory compliance. With a streamlined balance sheet, proven execution, and a sector ripe for consolidation, this is a buy now moment. Investors who act swiftly stand to capture gains as Rentokil capitalizes on its core strengths—and the safety and hygiene sector's unstoppable rise.

For the risk-averse: Monitor Rentokil's Q4 2025 progress on the sale and subsequent capital allocation. For the bold: This is a multi-year growth story at a compelling entry point.