CLEVELAND—After acquiring the Kirkhill elastomers business from Esterline Technologies Corp. earlier this year, TransDigm Group Inc. has entered into a definitive agreement to buy all of Esterline for about $4 billion.
TransDigm plans to purchase all outstanding shares of common stock of Esterline for $122.50 per share in cash, and expects to close the deal sometime in 2019, TransDigm Executive Chairman W. Nicholas Howley said during an Oct. 10 conference call. The deal, approved by both companies' boards of directors, includes the assumption of debt. TransDigm expects it to be financed through cash on hand and new term loans.
"Esterline is an attractive and complementary business for TransDigm," Howley said.
Esterline is a specialty manufacturer split into 28 business units across eight platforms. Those are grouped under three segments, according to Howley: Avionics and Controls at 42 percent of the revenue by segment, Sensors and Systems at 36 percent, and Advanced Materials at 22 percent. Avionics and Controls includes avionics systems, control and communications systems and interface technologies. Sensors and Systems includes the manufacture of high-precision temperature, pressure and speed sensors. Advanced Materials is made up of military defense technologies and commercial aerospace, nuclear and industrial end markets, with elastomer products.
"The core aerospace and defense business is made up primarily of proprietary and sole-source product positions with significant aftermarket content," Howley said. "This fits well with our longstanding strategic focus. We expect this investment to generate private-equity-like returns, the same as we always target."
The company expects the acquisition to be accretive to TransDigm's earnings per share within the first year of ownership, he said.
"Though this is larger than many acquisitions we make, we believe this is an effective and very attractive allocation of our capital," Howley said.
Esterline expects to generate about $2 billion in revenue, about $300 million EBITDA in 2018, and has about 12,500 employees globally. Esterline runs a decentralized organization, similar to TransDigm.
Howley said TransDigm will evaluate Esterline's "non-core businesses, and it very well may make sense for us to sell certain of them going forward. But it's too soon to be specific or speculate at this time."
The company will use a value-generation model, which will focus on bringing new business to market, driving productivity and value-based pricing opportunities, given the sole-source, proprietary nature of Esterline's business, said Kevin Stein, TransDigm president and CEO.
"Although we believe this business will generate significant value in accordance with TransDigm's value generation goals, a slower pace of improvement should be expected due to product mix, contractual positions and military business," he said.
Esterline is "largely a misunderstood business with higher aftermarket content," Stein said, with significant synergy opportunities, given TransDigm's experience with Kirkhill.