FROM SECOND HAND MOTORCYCLE DEALER TO LEADER OF THE PACK
Written on the 22 March 2017 by James Perkins
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.
It is the oldest Harley Davidson dealership outside of the United States.
"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."
Ahmet says he was exceptionally determined to make the business work.
"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."
Over time, Ahmet worked out his business model and began acquiring dealerships.
"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.
"And that's about half of the market," says Ahmet. "There's about the same size market that's not registered and that includes farmers and off-road bikes, kids' bikes, four wheelers, a host of different things."
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."
"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.
"I'm out there looking for more dealerships right now. Yeah, we will pay cash with a couple of them, no problems at all. Hopefully there's more out there for us to buy and I think there are.
"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