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On a sunny afternoon in January, Tom Byrne stepped up to the microphone inside a ballroom at Miami Beach's luxurious Fontainebleau resort and gave a nod to those who had stuck around late in the day to hear him speak.

It was just after 4 p.m., and many at the investor conference had already swapped their suits for flip-flops and headed poolside. But a group of investors and analysts stayed behind in the darkened room to listen to the new CEO of Swisher Hygiene.

"Thank you," Byrne said politely to those who came, in his words, "to kind of hear an update on the Swisher story."

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It was a bit of an understatement. As updates go, this was a doozy.

In less than two years, Swisher, an industrial cleaning company, had gone from stock-market superstar to a company whose affairs were in shambles, with a share price to match.

The shares, which peaked at more than $10 on the TSX in early 2011, had tumbled to less than $2. Investors had mounted a class-action suit over alleged accounting manipulation after the company announced in the spring of 2012 it would restate several quarters of earnings. In short, all was not good.

It was a stunning turn of fortune for a company that had set out to revolutionize the germ-killing business—selling products such as foaming meat-room cleaner and non-acid soap scum remover to restaurants, health clinics, hotels, cruise ships and the like.

At its height, the men behind Swish-er—including Canadian entrepreneur Michael Serruya and H. Wayne Huizenga, the dealmaker behind Blockbuster Video—couldn't grow the firm fast enough. In 2011, the company that made more acquisitions in North America than any other was not Berkshire Hathaway. Not General Electric. Not Google. It was Swisher, which was averaging an acquisition per week, prompting mom-and-pop investors to phone up CNBC's popular Mad Money show, demanding to know: Should I buy Swisher?

Less than two years later, Swisher's stock was circling the drain. For those sitting in the audience at the Fontaine-bleau, the question was obvious: What the heck happened?

Unfortunately for Byrne, speakers at the conference were allotted just 25 minutes for their presentations.

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Swisher Hygiene is a new take on an old story.

In 2004, Steven Berrard, a man whose resumé was studded with stock-market success, was driving through Charlotte, N.C., when he passed the home of Patrick Swisher.

Swisher was in trouble. The founder of Swisher Hygiene had recently been in jail for tax evasion. And the shine had come off his company, which, since 1986, had sold urinal cakes to businesses and provided restroom cleaning. Berrard's wife suggested he look into the enterprise.

After laughing off the idea—urinal cakes?—Berrard gave it more thought.

One thing was immediately clear: Swisher Hygiene lived in a fragmented industry. There was one massive North American player, Minnesota-based Ecolab, but otherwise the industrial sanitization sector was a constellation of small regional firms. Berrard saw what this meant. It was a classic roll-up opportunity: By consolidating the smaller firms, a savvy player could build scale and market share quickly, reduce the number of competitors, and squeeze out more profit by eliminating supply-chain inefficiencies.

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Berrard knew this model as well as anyone. He had studied it for decades under the tutelage of his partner, serial entrepreneur Wayne Huizenga, the Florida-based king of roll-up deals.

Huizenga, a college dropout, built three Fortune 500 companies. In the 1960s, he took a one-truck trash-hauling operation and, initiating a series of more than 130 acquisitions, turned it into Waste Management, the largest disposal company in the United States.

Then, as VCRs proliferated during the early 1980s, Huizenga turned to video rental stores, investing about $18 million for a 60% stake in Blockbuster, which he grew from regional upstart to national chain by swallowing up countless smaller rivals (all currency in U.S. dollars hereafter unless otherwise noted). In the late 1980s, a new Blockbuster outlet was being opened every 17 hours.

Blockbuster was sold to Viacom in 1994 for $8.4 billion, paving the way for Huizenga and Berrard to form Auto-Nation. It quickly bought up car dealerships across the U.S. until the stock began to sour in 1999, as growth opportunities dried up.

In Berrard's eyes—Huizenga's too— Swisher was the same game, but with a more attractive twist: It was recession-proof. Whether times were good or bad, restaurants and clinics still needed to clean their kitchens and washrooms, no matter what. Swisher items like no-rinse sanitizer, delivered to their doorstep,

were staples, not frills. It was, Berrard told The Charlotte Observer in 2007, "probably the best business I've ever seen."

Huizenga, worth an estimated $2.5 billion, and Berrard, an accountant who became his right-hand man, put in $14 million to buy up Swisher. The strategy was to create a "full-service" industrial cleaning and supply firm that would provide equipment, chemicals and linens to a host of industries.

Swisher soon began gorging itself. Between 2005 and the end of 2010, the company bought back most of its franchises and took over dozens of smaller firms. It used a mixture of cash and stock—but mostly stock.

Then in 2010, one of the oddest corporate marriages to ever be consummated began to come together: In a bid to go public, Swisher merged with CoolBrands, the faded Canadian-based maker of ice cream and frozen snacks.

CoolBrands grew out of Yogen Früz, a frozen-yogurt chain started by brothers Michael and Aaron Serruya. Precocious and ambitious—Michael was 20, Aaron 18—the brothers started with a single location in a mall north of Toronto in 1986, and eventually built an ice-cream manufacturing giant, buying up famous brands such as Eskimo Pie, and boasting revenues that hit $450 million.

But a dispute with Weight Watchers over the popular and lucrative Smart Ones line of frozen treats sent CoolBrands reeling. Unable to replace one of its bestselling products, the company saw its revenue slide, then crater, amid governance and accounting problems. Soon the Serruyas were liquidating assets to keep the business afloat.

By 2008, CoolBrands was a shell of its former self, with more than $60 million in cash from its fire sale, and nowhere to invest. The stock-market listing sat in limbo as Michael Serruya pondered where to take the company next.

Enter Huizenga, who by 2010 was looking to take Swisher public, and needed a listing. The union was helped by the fact that Berrard, Byrne and Serruya knew each other from serving on a board together.

It didn't matter that CoolBrands was a tarnished shell: A reverse merger would give Swisher a quick and easy way to tap the TSX. With big names such as Huizenga and Serruya behind it, a board that included former Florida governor Jeb Bush and Canadian senator David Braley, and a proven formula as its game plan, investors loved the Swisher story. Few questioned why an ice cream company was now cleaning toilets.

After debuting on the TSX in 2010, Swisher branched out to the Nasdaq in early 2011, trading at $6.45 a share. By April, as the firm steadily grew by acquisition, the price was climbing toward $10.50. The rise was mirrored on the TSX. Soon the company had an enterprise value of more than $1.5 billion. Swisher would soon boast more than 30,000 customers and nearly 1,600 staff.

But given the boom-and-bust record of its key executives, investors eventually began to question whether the company's metamorphosis and its soaring stock were for real.

Jim Cramer, the excitable host of Mad Money, was asked about Swisher on air in April, 2011, prompting a puzzled look. He didn't know much about the company, he said, but would look into it. A few days later, Cramer announced he wasn't on board. Sure, Swisher had big names behind it. But "sometimes bloodlines aren't enough," Cramer said. The stock was trading at 20 times sales. "Not earnings. Sales. That's insanely expensive," Cramer shouted. "I wouldn't touch Swisher with a 10-foot plunger."

Roll-ups are risky plays. They always look good on the way up. But sooner or later, the deals run dry and revenue growth slows. The stock faces a reckoning as the deals inevitably become increasingly pricey. The company must start producing growth organically.

One of the few analysts who covered the company, Kelvin Cheung of Clarus Securities in Toronto, wrote positively of Swisher's prospects in 2011. His company also served as adviser to CoolBrands on the merger and as lead underwriter on Swisher's stock offering. When Cheung initiated coverage, Clarus put an $8 target on the stock, which was then trading at about $5.50. A few months later, Clarus boosted its target price for the stock to $10.50.

December, 2011, brought the news that market-data firm Dealogic counted Swisher as the most acquisitive public company in North America for the year: 43 purchases. The deals for which dollar figures were reported added up to $220 million.

To help pay for the binge, Swisher sold $60-million worth of stock to institutional investors through a private placement, according to securities filings. Despite that dilution, investors continued piling in.


The spring of 2012 began in business-as-usual mode for Swisher, as it announced yet another set of acquisitions. But within weeks, the biggest mess facing the company was its own. In a move that stunned the markets and sent shareholders fleeing, Swisher's board of directors issued a press release on March 28, warning that the company's financial statements for the second and third quarters of 2011 "should no longer be relied upon."

It was the first public sign that the roll-up machine wasn't working. Revenue grew—rapid-fire acquisitions will do that for you—but Swisher never seemed to make any money. Revenue jumped from $21.4 million in the first quarter of 2011 to $67 million in the third quarter, which was more than 300% higher than the year before. Yet the whole time, the company posted multimillion-dollar losses each quarter.

Red ink wasn't the only problem. Swisher was choking on its modus oper-andi. The frantic rate of dealmaking had made the books difficult to decipher for even the most sophisticated investors. Swisher's accountants were apparently struggling too—several of the company's acquisitions were allegedly being booked incorrectly. Those concerns had been raised by an unnamed former employee, according to court documents.

An internal audit was launched. By May, Swisher's chief financial officer, Michael Kipp, and two senior accountants had been unceremoniously shown the door. The stock price slumped to $1.79, a new low.

The company's board, which in--cluded Huizenga, Berrard and Serruya, announced a review into whether the quarterly financials had understated losses. The audit homed in on two things—how certain costs and intangibles from Swisher's myriad acquisitions were counted; and a practice of optimistically toting up customer accounts that were actually unlikely to be paid. In short, Swisher's numbers made the picture look far better than it really was.

"We want our shareholders to know that providing confidence and transparency in our financial statements is of paramount importance," Berrard said in March, 2012. "We are doing everything possible to ensure that this is a one-time-only event."

But the headaches were only beginning. Swisher later disclosed that the Securities and Exchange Commission and Department of Justice had inquired about the alleged accounting problems. Meanwhile, shareholders launched a class-action suit alleging that Swisher had fudged its results to goose its stock.

The suit, which is being led by James Caird, Harry Noyes and Eugene Stranch, who collectively lost close to $1.8 million on the stock, claims that Swisher shares were "artificially inflated by issuing materially false and misleading statements," which clouded the company's "business, profitability, performance and prospects."

Unable to produce quarterly numbers during the audit, Swisher drew the ire of regulators when it became a delinquent filer with the TSX and Nasdaq.

On Aug. 20, with the shares at $1.62, Berrard stepped down as CEO. He remains the company's largest shareholder, with a 14.2% stake, ahead of Huizenga at 13.8% and Serruya with 2.4%, according to the most recent regulatory filings from late 2011. (Huizenga has kept all of his original shares; Serruya has sold a little under half of his.) Swisher has since signed Berrard to a consulting agreement potentially worth more than $1 million; his brief, in part, is to help Swisher defend itself against the lawsuit.

Byrne, the company's executive vice-president, stepped into the CEO role as mop-up man. His first job: Stabilize the business. As Byrne calmly explained during the investor presentation in Miami, "That uncertainty in the market has had an effect on our business." Specifically, an unnamed restaurant chain and a large supply-chain company had dropped Swisher, costing the company $11 million a year. Meanwhile, the internal investigation itself rang up $18 million in costs.

It all meant that Swisher would have to halt its dealmaking spree. "Do not expect to see a lot of acquisitions from us—really, none in the next couple of months," Byrne told investors. The company now wanted to concentrate on "brand enhancement."

After basking in investor love as one of North America's fastest-rising stocks, Swisher was now chastened. As of early April, the company's market capitalization sat at around $220 million, about a seventh of its peak.


Has Swisher gone completely down the toilet? Byrne gives reasons to be optimistic.

In an interview, he said the audit showed the company had understated its losses by $4.8 million. Byrne characterizes the problem as a series of unfortunate accounting errors. For example, when Swisher bought Florida's Choice Environmental Services in 2011 for $50.1-million worth of stock, the company came with $41.5 million of debt. Swisher paid the debt off early, and folded the $1.5-million early-payment penalty into the cost of the deal. Accounting rules, however, dictate that Swisher should have booked the penalty as an expense outside of the deal.

"I would say maybe it was a bit of a grey area," Byrne says. "I think if we were to explain the transaction to 100 people, probably all 100 of them would say that makes sense." That is, if none of those 100 is a regulator.

At Clarus Securities, Cheung has put the stock under review, "as we await clarity" on the company's numbers.

Byrne remains confident in the original model. Swisher is in a $17-billion industry on the chemicals side alone, he points out. Ecolab aside, the sector is still ripe for consolidation. "In any market, typically there are two dominant players that are able to capture the lion's share of the profitability. We've now put ourselves in the position to be one of those two," Byrne says. "Yes, there was a huge distraction in 2012 that didn't allow us to capitalize on that opportunity. But the premise is still the same."

During a conference call held on March 18 to disclose the company's numbers for the third quarter of 2012, Byrne did his best to highlight the positives, despite a $14.3-million operating loss.Swisher is now making over 80% of its chemicals in-house, he said, which will help margins. And the firm has cut operating costs by reducing its plant space. Swisher holds no debt, has $70 million of cash sitting idle, and foresees positive operating cash flow before the end of the year, he said. The company also expects to be up to date on its regulatory filings by late spring.

The stock climbed 15 cents the day of the conference call, closing at $1.37 (Canadian) on the TSX.

No longer the darling, Swisher is simply looking for respect. Perhaps the man who can best explain the rise and fall is Berrard himself (Michael Serruya declined to be interviewed). In a 2011 interview, Berrard said it was the thrill of the hunt that drew him to Swisher.

"You see a tail, and reach your hand through the fence, thinking it's a cat," Berrard said. "But then it turns out to be a tiger. And then you're in it." It's an accurate analogy—particularly for investors who went along for the ride.

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