Mader Group’s ASX listing caps 14 years of growth

Mining services company Mader Group has refined a unique business structure to sustain its profitable growth. Ahead of its ASX listing, we talk to chief executive Patrick Conway about the group's plans and founder Luke Mader's move to the US.

When Mader Group starts trading on the ASX later this month it will be notable for several reasons.

For starters, it’s a rare example of an established, profitable Western Australian company pursuing a stock market listing.

It will be the largest WA-based listing since Australian Finance Group and Wellard in 2015.

Another notable aspect is that Mader has not raised new capital through its $50 million initial public offering.

Instead, founder Luke Mader and investor Craig Burton have sold-down a combined 25 per cent of the company to new investors, in a deal that values Mader at $200 million.

The company did not need new capital because it is already consistently profitable.

Mader Group founder Luke Mader.

It has generated $54 million in profits and paid out $19 million in dividends since the business was established in 2005 – an attractive payout ratio of 35 per cent.

Mader’s valuation will instantly make the company one of WA’s top 60 stocks and judging by its growth trajectory that could easily increase.

The company has achieved extraordinary growth since being established by Mr Mader as a one-man operation.

It currently employs more than 1,100 people, mostly mechanics, across WA, the east coast and to a lesser degree overseas.

Its revenue is forecast to hit $226 million in the year to June 2019 and it is tipping revenue of $279 million in the current financial year.

Over the same period, its net profit is forecast to increase from $14.7 million to $18.8 million.

Mr Mader is currently focused on international growth.

He and his family moved to Colorado just more than 12 months ago in a bid to break into the large US market.

Chief executive Patrick Conway said Mr Mader recognised the same potential in the US that he saw in Australia 14 years ago.

“He’s surprised that nobody has picked it up in America, so he’s pretty excited by that opportunity,” Mr Conway said.

The company’s core service is providing specialised contract labour for maintenance of heavy mobile equipment for mining companies.

It was established after Mr Mader – a former WesTrac apprentice of the year – saw the potential to match or exceed the service provided by the equipment manufacturers.

Mr Mader also believed it was possible to provide a better work environment and career opportunities for the tradespeople.

As the group has expanded, it has refined a management structure Mr Conway believes will sustain its success.

The group is comprised of about 20 semi-autonomous divisions and Mr Conway said its intellectual property was the way it ran those divisions.

“This business was built by Luke, being a mechanic, for mechanics,” he said.

“We keep each division small, a maximum of 100 people, to keep it almost like a family-run company.

“They make their own decisions about who they recruit, who they work for, within reason, and what they charge their customers.

“They are responsible for delivering their own safety messages, retaining staff, career pathways.”

Mr Conway said about 90 per cent of the divisions were run by tradespeople ‘off the tools’.

“We identify high performers with commercial nous,” he said.

“They know the business, they know their customers, and they know their mechanics and what they want.”

Mr Conway said Mader had no plans to chase traditional economies of scale.

“One issue is that you start treating your people like a number, which is everything we don’t want to be,” he said.

“We could easily double the size of those teams with the same structure but it wouldn’t do any good for mechanics, they wouldn’t know their manager.

“And their manager doesn’t know their people or what they want out of life and what they want out of their careers.”

Mader Group’s profit-sharing scheme is also built around the semi-autonomous divisions.

The manager, coordinator, administrator and key field staff in each division share 10 per cent of their net profit before tax.

Bonuses are also tied to safety outcomes and staff retention in each division.

Mr Conway said the group had always been transparent with its results and sought to make its tradespeople financially literate at a very early stage of their career.

“They are accountable for their decisions and they can see how it impacts the P&L of the business and their division and flows through to their bonus,” he said.

Mr Conway said the divisional structure would help the group sustain its culture and standards, even with exponential growth.

“Every new division we establish, every new geography we go into, there is always a Mader person at the helm, someone who has been with us five-plus years,” Mr Conway told Business News.

“We don’t need to train these guys on our culture, they already know it.”

This approach is being applied in the US, but at a higher level.

As well as Mr Mader, one of the group’s key managers moved to the US a year ago.

They also took a team of eight mechanics, who were ready to work as soon as the group started winning contracts.

“They can blend in with the American recruits to make sure the culture is consistent,” Mr Conway said.

The group’s growth has been helped by its recruitment strategy around 2014 and 2015, when the sector was in a lull.

“The strategy at the time was to recruit,” Mr Conway said.

“The big boys were laying off a lot of people, there was a bucketload of mechanics available and we employed them.

“We knew the market would turn eventually and we wanted to be holding the labour and we wanted time to integrate these guys into the business and make them Mader people.”

That has left Mader well placed for the pick-up in mining investment over the past two years.

That investment has flowed through to tighter supply of experienced trades and pressure on pay rates, but Mr Conway said Mader was still expanding.

“We are actually interviewing and recruiting more than we ever have over the past five years.”

Bell Potter Securities was lead manager and underwriter for Mader Group's $50 million IPO.

BDO was investigating accountant and GTP Legal was legal adviser.