Huizenga-led firm grows fast in commercial cleaning
April 29, 2011|Marcia Heroux Pounds, Sun Sentinel
Mike Stocker, Sun Sentinel
Entrepreneurs H. Wayne Huizenga and Steve Berrard are on a mission to clean and supply every public restroom and kitchen in America. To do so, Swisher Hygiene is aggressively acquiring mom-and-pop businesses.
Since last summer, Swisher has acquired more than 20 cleaning, linen and waste management businesses and franchises in the United States and Canada.
"We're going to have a growth unlike others — not only from existing businesses, but putting in more product, and also making acquisitions," Berrard said in a recent interview explaining Swisher's business model. On Thursday, Berrard will review the company's progress with shareholders at Swisher's first annual meeting in Fort Lauderdale.
The duo's latest venture borrows its familiar strategy from automobile retail giant AutoNation and the video retail business Blockbuster, which Huizenga and Berrard built together. But Swisher chief executive Berrard says the well-worn business model has been spiffed up to reflect a new economy.
The entrepreneurs have set out to capture a growing share of the $93 billion market for the hygiene, chemical, waste management and related services in North America. Swisher's strategy is to offer restaurant and other customers a broad array of cleaning products and services at a cheaper price than competitors.
Though waste management is a smaller part of its growth plan, Swisher is now competing in that segment with Huizenga's first entrepreneurial success, Waste Management Inc.
Over the past six months, Swisher has been rapidly sweeping up mom and pop cleaning businesses, linen services, and waste management companies to become a full-service provider to restaurants. Swisher's customers include an undisclosed major cruise line, the Gaylord Hotels, and a nationwide chain of assisted-living centers.
Though based in Charlotte, N.C., Swisher has significant holdings in South Florida: a regional distribution center in Medley; Choice Environmental Services, a waste management company; and a Fort Lauderdale linen business. South Florida is Swisher's "fastest-growing market," Berrard said. "It is the model we want to build from."
Glen Miller, majority owner in Choice Environmental said joining forces with Swisher gives Choice the capital access and resources to make acquisitions in waste management. "This has opened up everything for us in terms of expansion and growth," Miller said.
The entrepreneurs say they're employing many of the same tactics used to grow Blockbuster and AutoNation. "Our formula for success has been identifying an established industry that isn't meeting customer needs and then capitalizing on that opportunity" through innovation,Berrard said. "This is exactly what we're trying to accomplish with Swisher."
After buying the company in 2006, Huizenga and Berrard changed the focus from generating revenue from restroom cleaning services to building a full-service provider of hygiene and sanitation products and services.
More than half Swisher's revenue comes from the hospitality industry – foodservice and restaurants. So Swisher aims to offer full hygiene service: all the products and services needed to keep the kitchen and restroom sanitary and supplied, and regular waste collection to keep the trash bins from overflowing.
"The best way to grow the business is trying to get customers to buy more things from you," Berrard said.
Berrard said he already has quadrupled Swisher's revenue per service call. In 2004, Swisher collected $17 in revenue from each customer stop. Today, with the addition of other products including cleaning chemicals, bar towels and aprons, floor mats, and extra services, Swisher brings in close to $70 at each stop, he said.
Weekly service calls with preventative care keeps down costs, which also makes the company more competitive, Berrard said. "We make sure the equipment is maintained. We can afford to charge a little bit less."
Analyst Kelvin Cheung of Clarus Securities noted in his Jan. 7 report on Swisher that it has a "highly successful" management team, significant growth potential, and an attractive business model based on recurring revenue. But he noted that its prime competitor, Ecolab, could respond to Swisher's threat with a price war.
Ecolab, a publicly held company based in St. Paul, Minn., provides cleaning, sanitizing, food safety and infection prevention products and services, generating $6 billion in annual revenues. Other competitors include Cintas, G&K, and UniFirst.
But Ecolab, which claims $2.6 billion of the nearly $18 billion commercial cleaning chemical market, also has been making acquisitions in the commercial cleaning market. That's one reason Swisher is moving fast to acquire existing businesses in its sector. "There's still a $15 billion market beyond Ecolab," Berrard said.
Swisher's empire has yet to pay off for shareholders: The company had a net loss of $17.6 million on sales of $63.65 million in 2010. Berrard said he expects the business to become profitable this year as expenses for acquisitions and structural financing "should be behind us."
The entrepreneurs took a hit recently in The Wall Street Journal's "Heard on the Street." Swisher "still has to prove itself. At the current price, there seems little chance investors will clean up," columnist Rolfe Winkler wrote.
Swisher's stock has moved as high as $11.43 and as low as $4 since the company went public in November 2010; it closed at $8.77 a share on Friday in Nasdaq trading.
Berrard said he and Huizenga, company chairman, are "up for the challenge." In comparison with previous ventures, Swisher is easier because the entrepreneurs are drawing from experience at AutoNation and Blockbuster. "But it's more difficult in some respects because people have tremendous expectations of us. There's not a lot of room for error."
In the future, Berrard even sees Swisher's brand extending to the residential market. "People are price sensitive and looking for low-cost alternative in everything they do."
To sustain the company's growth, Swisher completed a private placement of its stock in April, generating $76 million.
When making acquistions, Swisher pays entrepreneurs at least half in cash, rather than all stock. That's a lesson learned from the early years of AutoNation, Berrard said. In the first two years, AutoNation used stock to make acquisitions, but that made the stock price volatile as former business owners cashed out.
"You want to use stock but make sure it's redistributed in an orderly fashion," he said. With institutional investors, "they're going to sell, but not going to sell dramatically."
Swisher also has secured a $100 million credit line, with an initial $32.5 million available, to support its expansion. "Even if the share price would falter dramatically, if war breaks out, if oil prices soar, I can continue the program. We have the tremendous ability to live through 2011 and 2012, even if we can't issue any more shares," Berrard said.
mpounds@tribune.com or 561-243-6650.
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