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TransDigm Continues Acquisition Spree, Buys Extant Aerospace

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TransDigm Group Incorporated (TDG - Free Report) continued its acquisition spree as the company inked a definitive agreement to buy Extant Components Group Holdings, Inc. — a portfolio company of Warburg Pincus LLC — for nearly $525 million. This comes close on the heels of the Kirkhill acquisition from Esterline Corporation last week.

Extant is a provider of proprietary aftermarket products and repair & overhaul services to the aerospace and defense end markets. The deal is expected to close in second quarter 2018 and subject to customary closing conditions and approvals. It will be financed through a combination of cash on hand and existing availability under TransDigm’s revolving credit facility.

Extant exclusively licenses or acquires proprietary aftermarket-focused products from leading aerospace and defense OEMs. Thereafter, it supports these products over the useful lives of the aircraft on which the equipment is installed. The firm currently derives about 80% of its annual revenues from the aftermarket, almost all of which is generated from proprietary and sole source products. A majority of the sales are derived from military end market, with the remainder from commercial applications market.

The company presently owns or exclusively licenses more than 2,500 assemblies and sub-assemblies on over 70 active platforms. This makes Extant an attractive value proposition to OEMs. Thus, Extant enjoys an active pipeline of new product line acquisition opportunities.

Notably, TransDigm’s long-term growth strategy rests on five pillars, one of which is expanding its proprietary aerospace businesses. Also, it frequently acquires proprietary aerospace businesses, with significant aftermarket content, which strengthens the company’s foothold in its core market and is in line with its operating strategies. In fact, 90% of TransDigm’s net sales stem from proprietary engineered products, and the Extant and Kirkhill acquisitions are expected to add to the same.

In the past three years, the company has acquired about $3 billion of proprietary aerospace businesses. Additionally, TransDigm has been integrating recent product line acquisitions of Preece, Cablecraft and North Hills into AdelWiggins, AeroControlex and Data Device Corporation, respectively, over the past few months.

Extant’s unique model fits nicely with TransDigm’s proprietary and aftermarket-focused value generation strategy. TransDigm’s shares have appreciated 14.4% over the past six months, outperforming the industry’s rally of 9.7%.

 

Meanwhile, the company’s buyouts of proprietary aerospace businesses with significant aftermarket content have helped it bolster footprint in core market and grab a higher market share. In the fiscal first quarter, the company’s acquired businesses generated $32 million of additional sales. The company anticipates these acquisitions to help shift focus to higher growth segments, consequently becoming more competitive.

Also, TransDigm’s earnings have trumped estimates in three of the trailing four quarters. The Zacks Rank #2 (Buy) company is expected to sustain the momentum driven by complementary acquisitions, positive industry trends, solid operational execution and steadily growing end markets.

Other Stocks to Consider

Some other top-ranked stocks in the industry include Curtiss-Wright Corporation (CW - Free Report) and Teledyne Technologies Incorporated (TDY - Free Report) , each holding a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Curtiss-Wright has surpassed earnings estimates in each of the trailing four quarters, resulting in an average surprise of 15.1%.

Teledyne Technologies has delivered a positive average earnings surprise of 35.4%, beating estimates in all the trailing four quarters.

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