Flat-out in the fast lane
Thursday, April 12, 2007/
Con Liosatos and Con Scrinis saw an opportunity in Australia’s fragmented traffic services sector – providing signs, signals and road marking. They have built a $120 million operation, but are thinking bigger. By MIKE PRESTON.
By Mike Preston
Con Liosatos (right) laughs when you tell him Traffic Technologies’ strategy of growth through acquisition mirrors the aggressive tactics commonly used by private equity players.
“It’s very true. We’ve been told quite often we should be privatised by someone but we’re not,” he says. “But yes, it is very similar to what you see private equity doing.”
Liosatos is Traffic Technology’s joint founder and managing director. In just over two years Liosatos and his long-time partner, Con Scrinis, have acquired 14 companies collectively worth well over $100 million, embracing the classic private equity “roll-up” technique to build a business with annualised revenue of $120 million.
Traffic Technologies now dominates Australia’s otherwise fragmented traffic services sector. It is listed on the ASX with capitalisation of about $36.8 million, and in the past year its share price has jumped from 28¢ to 47¢.
Liosatos and Scrinis saw the potential for a leading player to emerge in the traffic services industry – which encompasses the provision of a range of services and products including traffic management, road signs and signals and road marking – while developing a LED traffic light as part of their previous commercial lighting business, Moonlighting.
In 2004 they sold Moonlighting for $8 million and, with the support of several investors who had seen their success with Moonlighting and were keen to get behind the new venture, bought a struggling Queensland traffic management company, TSA Traffic Management Services. Traffic Technologies was born.
Since then, Liosatos and Scrinis have led Traffic Technologies through a whirlwind of acquisitions in every Australian capital city, including, most recently, the $37 million purchase of Sydney-based traffic signals company Aldridge in February.
“We saw a fragmented industry, so we thought, ‘Let’s get in their and start consolidating’, Liosatos says. But, he acknowledges that the frenetic rate at which Traffic Technologies has sought to incorporate new businesses has presented challenges.
“A lot of these companies are former government authorities. They didn’t want to grow any bigger and they didn’t have that vision of the industry,” Liosatos says. “The cultural change for these guys when the join Traffic Technologies is huge. Iit isn’t just them and their wife running the business any more; it is national business they were a small part of, and that was hard for them to grasp.”
Liosatos says Traffic Technologies’ 2005 purchase of national sign-making company De Neefe Signs is a case in point.
“De Neefe had been around for 80 years. It was in a bit of stress when we took over – people had been there a long while and getting them to change their ways was difficult,” Liosatos says. “We had to tell them why they had to change and persuade them which was hard. We had some people leave but that’s the way it was; the changes had to be made.”
But while integrating acquired business into Traffic Technologies has necessarily involved some upheaval, Liosatos is keen to stress that he hasn’t taken a “tear then down, build them up approach”. Rather, he says, harnessing the talent and energy of the employees and management of acquired business has been crucial to Traffic Technologies’ success.
“The owners of the businesses that have come in usually remain on as managers. We’ve had very few leave and some our best management has come from there,” he says.
Equally, Liosatos says, although he will generally more quickly to bring the back office functions of an acquired business into the Traffic Technologies’ head office, he doesn’t rush to replace the identity and brand of businesses when they are acquired.
“Initially we don’t rebrand; we let them stand alone as a business unit and over a period of time – 12 months or so – we integrate them further as a part of Traffic Technologies. It makes the transition process easier for the staff in these places to handle, plus there is a lot of goodwill in these brands and we want to exploit that.”
It’s about vision
It is clear that the vision of building a national traffic services company is central to what he and Scrinis are doing.
“Definitely our key role is to put that vision out there and get people on board with it. We have 1600 people working for us and they need to believe the story we’re telling. As long as everyone understands the goal we’re all going for then we’ll get there.”
Conventional theory would have it that Traffic Technologies’ unusual management structure, with Liosatos and Scrinis acting as co-managing directors, might make it difficult to formulate and express a confident and unified vision.
Liosatos agrees that having joint managing directors would be a disadvantage for most businesses, but says his close relationship with Scrinis means they are effectively able to work as one.
“We share the same office and that’s the way we’ve worked for a long time. We talk ever day and we trust each other completely – you have to when you’ve moving at 100 miles an hour like we are,” he says.
Liosatos says he and Scrinis are always careful to present a unified front to Traffic Technologies’ board, employees and the market generally.
“We bounce ideas off each other all the time and sometimes we agree, sometimes we disagree, but we always come to a joint position and present it to the board or investors together. They know we are both fully committed to any initiative we bring to them.”
The future: more growth, here and abroad
Although parts of Traffic Technologies have been profitable for some time, Liosatos says he expects it to achieve its first full-year profit this year after reporting a profit in the first half of 2006-07 of $1.1 million.
Liosatos says Traffic Technologies plans to grow its revenue to $200–300 million a year by making further acquisitions and pursuing growth in export markets.
And he says, there are opportunities in the emerging smart traffic management sector that could be a growth spur for Traffic Technologies well into the future. Investors agree: the company’s shares are trading on a price/earnings multiple of 63.
“We are seeing glimpses of it now with bus stops that tell you when the bus will be there, electronic road signs that tell you ho w long it takes you to get to the airport, that sort of thing. All that is getting better and better but you need to develop it, install it and maintain and that fits perfectly in our space.”