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TransDigm to Acquire Esterline Technologies for $4 Billion

TransDigm Group Inc. TDG and Esterline Technologies Corp. ESL recently entered into a definitive agreement, under which TransDigm agreed to acquire all the outstanding common stock shares of aerospace-parts maker, Esterline, for $122.50 a share in cash. This also represented a 38% premium to Esterline's closing price of $88.79 per share, on Tuesday.

The transaction, which has been approved by the boards of directors of both the companies, is valued at approximately $4 billion, including the assumption of debt. TransDigm plans on financing the acquisition primarily through $2 billion of cash in hand and new term loans.

Both the companies expect to complete acquisition formalities during the second half of 2019, subjected to Esterline stockholders’ approval and other mandatory regulatory approvals.

TransDigm’s Aggressive Acquisition Strategies

As part of its capital allocation program, TransDigm heavily prioritizes on making accretive acquisitions consistent with its various strategies and return requirements. This is evident as the company has successfully acquired seven companies in fiscal 2016 and 2017.

To date, TransDigm has spent roughly $660 million on acquisitions in fiscal 2018, which included the acquisitions of Kirkhill and Extant Aerospace for about $575 million combined. The company also announced the acquisition of Skandia for about $84 million in July. Such robust M&A strategies followed by the company not only help it expand its product market to different verticals, but also meet its private-equity like return requirements.

How Will the Acquisition Benefit TransDigm?

The acquisition of Esterline, which consists of 28 business units to deliver specialty aerospace, defense and industrial products, will significantly expand TransDigm’s platform of proprietary and sole source products for the aerospace and defense industries.

Post the acquisition, Esterline’s robust platform positions in both the Original Equipment Manufacturer (OEM) and aftermarket will help TransDigm emerge as one of the top aerospace and defense suppliers, and aftermarket providers. Notably, Esterline’s inclusion will certainly create significant value for TransDigm shareholders, customers and stakeholders.

The company’s buyouts of proprietary aerospace businesses, with significant aftermarket content, have helped it expand footprint in the Aerospace-Defense Equipment market and grab a higher market share. Within the same industry, The Boeing Company BA recently acquired KLX Inc. KLXI in order to amplify its aircraft services business.

This clearly shows how important a role M&As play for strategic expansion into different areas. Notably, TransDigm anticipates these acquisitions to help shift focus to higher growth segments and become more competitive, going forward.

Price Movement

In a year’s time, shares of TransDigm have gained 22.5%, against the industry’s gain of 7.6%. The outperformance can be attributed to weak performance in some of the company’s product lines.



Zacks Rank

TransDigm currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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