Swish had previously paid for acquisitions with traditional bank loans, advances from the owners and cash flow.
This time, Mahoney settled on something different: Mezzanine financing from BDC Capital’s Growth & Transition Capital team. This is a debt product with flexible repayment terms tailored to suit particular situations, including acquisitions.
“We found there was a willingness to take on a level of risk that wasn’t there with other lenders,” Mahoney says. “One advantage was the flexibility to pay down the debt on an accelerated basis.”
The acquisition gave Swish a solid anchor in Western Canada and, with sales up significantly, the company was well positioned for more growth.
Acquiring a company can be a smart way to expand your business—especially in markets where it’s hard to gain a foothold. But acquisitions can turn sour for a variety of reasons, including poor target selection, weak integration and inappropriate financing, says Enes Kula, a Director at Growth & Transition Capital.
Ask questions about your strategy
Kula worked with Swish on financing the S.K. Sanitary purchase. He tells clients to first make sure buying a business is the right growth strategy for their company.
“Analyze what new value you could add to your company,” Kula says. “Then, ask if you have the internal capability to create that value. If you don’t, then an acquisition could expedite the process.”
The next step is choosing the right acquisition target. List strategic criteria the target company must meet and stick to them. Businesses often get caught up in the excitement of shopping for acquisitions and make the mistake of buying companies that aren’t a good strategic fit.
Another danger is paying too much, especially when shopping in a hot market. Overpaying reduces your financial returns and increases your risk.
Once you’ve narrowed your choices, it’s vital to do due diligence on your potential acquisition, investigating everything from its gross margin to working capital and inventory turnover.
Minimize negative impacts
Plan for how you will integrate the acquisition and reduce impacts on employees, customers and suppliers. Be mindful of the culture of the acquired company and communicate often to minimize disruptions during the transition.
At Swish, acquisitions have always been a part of the company’s growth. As part of a strategic planning exercise in 2011, the firm decided to take a more aggressive approach.
Geography was a key criterion but Mahoney also looked for companies that offered synergies with Swish, shared the same culture and were well run, with engaged owners willing to stick around after the acquisition to help with the transition.
Project manager eases integration
When Swish acquired White River Paper in Vermont in 2014, Mahoney appointed a full‑time project manager to oversee the integration for the first year. The result is “a much higher level of employee engagement on both sides.”
Mahoney also decided to keep the White River brand, widely recognized in New England, and rename Swish’s entire U.S. division Swish White River.
As well, White River’s employee benefits were superior to those at Swish while costing the same amount, so Mahoney adopted those benefits for Swish’s existing employees. The moves built trust and morale on both sides, and reassured White River staff that the acquisition wasn’t a cold‑hearted corporate takeover.
“It’s emotional for staff on both sides of an acquisition,” Mahoney says. “There’s always a sense of insecurity. If you are inclusive and give employees the feeling they have a say in the future business, you get much higher commitment.”
Watch a video about Swish and making an acquisition.
4 tips for a smooth acquisition
1. Consider various financing options
It’s important to consider a financing structure that maximizes your repayment flexibility and reduces personal risk. Useful options include vendor and mezzanine financing.
2. Get an outside evaluation
Some entrepreneurs overestimate the value of their company, complicating an acquisition. Seek professional third‑party advice on their valuation.
3. Appoint and reward a project manager
A project manager will oversee the acquisition. You should compensate him or her in part based on the performance of the acquired company.
4. Adopt best practices
Look for best practices at the acquired company that you can adopt throughout your entire business.