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MOTORCYCLE Holdings (ASX: MTO) founder and managing director David Ahmet (pictured below) says he often gets asked whether motorbikes are fad, and how long their popularity will last.
Ahmet's standard answer is, 'well they've been around for 100 years and I don't see why they won't be around for a bit longer'.
His business, which began in 1986 at Moorooka on Ipswich Road, is already one quarter of the way to reaching a century, and it owns a dealership which turns 100 this year - Morgan and Wacker Motorcycles, on Elizabeth Street in Brisbane.
"The interesting part about Morgan and Wacker is that they've had the same name for 100 years, but the Morgan part of the Wacker died a year into the business in 1918," says Ahmet.
"So, there's been no Morgan for 99 years but the name has stayed the same.
"When we bought the dealership five years ago, we decided to keep the name. There is a lot of heritage that goes with it."
Motorcycle Holdings is Australia's largest motorcycle retail group, selling more than 15,000 motorcycles each year. It has 34 franchises across 24 dealerships selling eight of the top 10 best selling brands in Australia.
In April 2016, the company listed on the ASX with an offer price of $2 and at time of writing is trading at $4.30per share.
Ahmet spoke at a recent Morgans Financial breakfast in Brisbane, where he shared the story of the company, which he started upon returning from an overseas sojourn as a 23-year-old.
At the time, the Australian economy was in bad shape. It was the 'recession we had to have', according to Prime Minister Paul Keating. Accountants, bank managers and Ahmet's own father tried to talk him out of buying a dealership, but he couldn't be stopped.
"All I knew was that I wanted to run this dealership and I was determined to do it," he says.
"I didn't know there was a recession, or that there was 10 per cent unemployment; I had to borrow money at 21.5 per cent from the National Australia Bank to get into that business."
To secure the loan, he mortgaged his mother's house.
"That's what gave me the opportunity to borrow some money and get into my very first business back in 1989," says Ahmet.
"Once I got in there, the reality of the situation hit home and I realized that I had a fair bit of work on my plate to free my mother's house up so she didn't get thrown out onto the street."
"I must admit, the bank was very reluctant to take the house as security, they said they didn't like turfing mothers out onto the streets. But anyway, I talked them into it."
Ahmet says ignorance is bliss, sometimes.
"Not worrying too much about the economy probably meant I could do anything, and I managed to free my mother's house up in 18 months - it didn't take too long to retire enough of that debt that I could secure it myself."
"Once I got in there, I thought, 'this is fun! This is easy to sell motorcycles into Brisbane!' It was, and it still is - it's no different today."
"It's a strange industry, as it's not terribly professional in a lot of ways. It creates a lot of opportunity for someone who does get organized, for someone that does have a business system, for someone who can think more about it than just the product and think about the business as well," he says.
"The industry was fast asleep."
Additionally, motorcycle sales have roared to life in the past 10 years. It took 90 years for motorcycle registrations in Australia to reach 400,000, and in the past 10 years that number has doubled to 800,000.
Ahmet says the unregistered market is hard to quantify, but the number of bikes on the road continues to grow, making them the fastest growing type of vehicle in the market.
As Ahmet increased the number of dealerships he owned to 16, he drew the attention of Archer Capital. After two-to-three years of negotiation, Archer took a majority share of the business with a five-year exit plan.
"We had a great relationship; we worked particularly well together - they were happy with the investment, and I was happy with them as partners. I really can't sing their praises enough."
When it came time for Archer to exit the business, Ahmet considered buying Archer's share, but he was eventually convinced that an IPO was the right way forward.
"At first, I said, 'there's not a chance in hell am I going to (run) a public company', but somehow - probably because they thought the valuations were so much better - they talked me into it.
"There was a fair bit to learn there, but the business is the same, getting up each day and running a business is the same as its always been."
The Motorcycle Holdings April IPO went on to be seven times oversubscribed.
"We didn't have a lot of shares to sell, but gee there was a lot of interest from the funds and from the public - the phones rang off the hook."
The market has reacted positively to the way Ahmet and his team have run the business. The share price began trading at $2.50, and has since double the offer price of $2 in less than a year.
In its first half year as a listed company, Motorcycle Holdings recorded a profit $5.56 million, up 27.3 per cent on the prior corresponding period with sales revenue of $120.7 million (+14.9 per cent), and earnings before interest, tax, depreciation and amortization (EBITDA) of $8.6 million (+22 per cent).
"I'd like to think there is a lot more in it, we are by no means finished," says Ahmet.
Currently, the company is largely Queensland focused, and there is opportunity to expand into other states and territories.
The business also moved into insurance and financing several years ago, and recently opened its first retail motorcycle accessories store.
"There's plenty of scope there for us to expand, we've got the business model that works and it's really not that different to the same business model we had 10 years ago, or 20 years ago, it's really just the fundamentals of business."
Only this week, the company announced it had completed the acquisition of Action Motorcycles on the Gold Coast and Evolution Motorcycles in Epping, Victoria in March.
"It will be a mixture of cash and borrowing, but conservative borrowing. I don't think we'll go to the market to raise capital, we won't dilute the shares; we're trying to keep the shareholding as it is and use our existing profit to help us expand."
The business has 450-500 staff and Ahmet's senior management team includes around eight people, each of whom has stakes in the business from the time that Archer Capital was involved.
"They've all been with me for years and they're the best in the industry, I think, so they know exactly what to do when we buy another dealership - the team goes in and away we go."
The Motorcycle Holdings business is on solid ground, with a wealth of experience and cash in hand to continue acquiring dealerships, and expand further into the retail space for motorcycle accessories.
"I can't see any reason why Motorcycle Holdings won't keep going," says Ahmet. "Motorcycles are 100 years old and Motorcycle Holdings hopefully will make it to 100 one day."
Business News Australia
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