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Growing Gains

ADI Mechanical has expanded at an impressive rate. In 1990, turnover was £300,000. Last year, it was £32M. HVR asks managing director Alan Lusty how he did it.
Growing Gains
Alan Lusty, managing director of ADI Mechanical, has opened a new division of his company every 18 months.

It is, says Lusty, a business built of blocks. The company was formed in 1990 and is owned by Systems ADI Group. It started off as ADI Electrical, an electrical installation company. But, he insists, ADI was always intended to be a one-stop shop for engineering.

In the second year, the company began building control panels. In the third year, it started writing software for systems.
'The business plan called for the company to add another discipline every 12 to 18 months and, eventually, to become a full turn-key service.'

The business was aimed at manufacturers, simply, as Lusty puts it, because he had a manufacturing background. And it worked as the business grew and grew but, Lusty acknowledges, the downside was that the manufacturing sector was contracting.

It was a no-brainer as far as moving into other sectors was concerned. The company's philosophy was that, as it added new disciplines, it would sell these into existing clients before it sought to attract new ones.

The mechanical side of the business was not added until nine years after the firm started. Lusty developed the division under an old colleague, Paul Hart, who is now director in charge of the project management division.

Within 18 months of starting its new division, ADI had bought a mechanical business in Banbury, Oxfordshire.
Lusty puts it that there were 'spiders in the cupboard'. So he kept it at arm's length until the problems had been sorted out and the business smartened up with high-tech systems. Then it was relaunched as ADI Mechanical.

'It was a dying company. The directors wanted to retire. They were fed up with increasing legislation but, luckily, it still had many clients and they came with the business,' he maintains.
So ADI gained a business with 26 employees and £1M turnover. 'Some people take 20 years for their businesses to turnover £1M, we did it in two.'

In 2000, ADI Mechanical made another acquisition, purchasing a machine tool maintenance company. This gave ADI an in with mechanical maintenance. 'Again, the directors were 65 and wanted to retire.'
The company was integrated into ADI Mechanical and, again, it was a case of the new boy on the block being able to keep the customers.

Potential to extend

Lusty says he was aware the machine tool industry was on the wane but the bosses had not pushed the company and ADI could see the potential to extend its remit.

So ADI buys businesses with latent potential?
'We have not yet bought a business which we have not had to work. Businesses which are all singing and dancing are too expensive.'

Again, it is a question of being able to service the clients better than previously and, by doing so, be in a position to offer other services.

The acquisition strategy has changed over the years. Lusty says the policy during the first five years was to grow the business. Wherever the acquisition was geographically did not matter much.
But he and his fellow directors soon realised they were racing up and down the country looking after the various businesses.

So they decided to concentrate within a 50-mile radius of the Kings Norton head office. And from the Banbury office, where the electrical company was, they started to work within another 50-mile radius, which means the workers can go into London and the suburbs.
Then ADI opened a Northampton branch again with a 50mile limit. The most recent acquisition - about 12 months ago - was a firm in the M6 corridor, which gives access from Stoke to Liverpool.

ADI Mechanical bought the mechanical arm of Stoke-based JSA, which represented about 60% of the total JSA business. And it has started its own maintenance company for that radius.

Stoke will become the centre of excellence as far as ADI Mechanical is concerned, concentrating on the commercial and industrial sector, while the Kings Norton office will concentrate on the manufacturing sector.

'There seems to be more people with the skills we need in the Stoke area.' And, to add to this, the company is presently doing due diligence on a Stoke electrical business, which, if it is OK, will join with the mechanical business.

Next stop Bristol for the acquisition trail, says Lusty, as it builds on the Tegg franchise and adds other services.
But back to the building blocks. As well as the acquisitions, the company was also working hard at extending its range.

The company was not just extending geographically, the ADI Group has also moved in other directions. As well as mechanical and electrical (m&e) divisions, there is now ADI Facilities Management.
'Many M&E companies have to buy in facilities management services. We have our own direct workforce and we are in control.'

Another division is environmental, which started a year ago, and which deals with Part L8, water treatment. Yet another is ADI Ireland, which Lusty intends 'will replicate how the company has grown in the UK'.
So, from virtually a standing start in 1990, there are now 230 people working for the company plus about 20-30% sub-contracted labour.

The growth goes on

In 1990, Lusty says proudly, turnover was a mere £300,000. Compare this with the £32M turnover in 2006. This turnover was reached two years ahead of that three-year plan. And the new three-year business plan is to have a £70M turnover. The growth will go on, says Lusty.
'Other companies have seen the way we grew our business and tried to replicate it but a number have failed as it is not an easy model to replicate.'

And he watches the competition as all good managing directors should. 'We have competitors in most areas but none of them do everything we do.'

And, as for profit, as well as increasing turnover, the idea is to increase profit as well. And each division - there are 18 in all - is monitored for its profit and turnover. So it's a success story that will go on, then.

How Lusty deals with retentions

Alan Lusty has his own way of dealing with retentions.
The whole amount is invoiced as soon as the job is completed. But ADI will not chase the retentions part of the invoice until it is due. And, when customers ask why ADI works this way, he insists that the work has been done and the invoice is a legal document and must be paid.
He adds as a rider that increasingly, as the company's reputation grows, it is able to work for end users and therefore the retention aspect does not arise.

Electrical Faults

ADI has just taken its second franchise in the UK with Tegg, a system which measures the integrity of electrical installations.
The Tegg system was initiated by a number of American insurance companies, which had found themselves with big payouts after a series of electrical breakdowns or fires. They joined with GE Electrical and Johnson Controls to form the Tegg (from the word Integrity) company to franchise the work.

There are Tegg franchises across North America and a couple of years ago, the operation moved into the UK.

ADI was one of the installation companies nominated by the UK arm of Johnson Controls to be offered a franchise. 'Tegg is the only system that we know in the world where the maintenance is undertaken while the installation is live.'

Hospitals cannot close down their electrics for a check and banks would not be interested in switching off their computers for 24 hours. For ADI there is a large investment in software and tools. And, if the clients buys into the service, he receives a harmonics and thermal imaging check and confirmation of the electrics. Lusty believes Tegg will do for electrical installations what CORGI has done for gas.

Apprenticeships

Schools do not seem to teach youngsters about apprenticeships, states Alan Lusty.
When they can get apprentices, the company takes on two electrical and two mechanical ones a year.
He says that only one so far has failed and that was because he 'went off the rails'. He estimates it costs the company about £30k per apprentice to train. And increasingly the apprentices are trained on the job to be multi-skilled.

Managing Waste

Another ADI company is ADI Waste Management.
The company has a licence to remove waste but, says Lusty, because 'we are engineers' it works with clients to recycle waste or reduce it rather than 'just charging them to take it away'.
1 October 2007

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