Precision Castparts 101: An Overview for Merger Arbitrage



Precision Castparts manufactures complex metal components and products

Precision Castparts (PCP) is a manufacturer of complex metal components and products that provides castings, forgings, and fastener systems primarily for aerospace and power applications. Examples of its products include:

  • seamless pipes for gas turbines and nuclear power plants
  • casing, pipe fittings, and various mill forms for oil and gas drillers
  • castings and forgings for general industrial applications
  • nickel and titanium alloys for the aerospace, chemical processing, oil and gas, pollution control, and other industries
  • fasteners for automotive markets and other applications

Precision Castparts operates in three principal business segments: Investment Cast Products, Forged Products, and Airframe Products.

Aerospace applications account for about 70% of PCP’s revenue, followed by power, with 17%, and general industrial, with the remaining 13%. Its biggest customers include General Electric (GE), United Technologies Corporation (UTX), and Rolls-Royce. Precision Castparts has long-standing relationships with its customers and very high switching costs. For these reasons particularly, Berkshire Hathaway (BRK-B) became interested in buying the company.

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Investment Cast Products

This segment manufactures investment castings for aircraft engines, industrial gas turbine engines, airframes, medical implants, armament, unmanned aerial vehicles, and other industrial applications. Investment Cast products accounted for about 25% of sales last year.

Forged Products

PCP is one of the leading manufacturers of forged components for the aerospace and power generation industries. Forged products accounted for about 43% of the company’s sales last year.

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Airframe Products

This segment consists of fasteners, fastener systems, aero structures, and precision components, primarily for aerospace applications. It accounts for approximately 32% of the company’s sales.

Merger arbitrage resources

Other important merger spreads include the Freescale-NXP transaction. The merger of Freescale Semiconductor (FSL) and NXP Semiconductors (NXPI) is expected to close by the end of the year. For a primer on risk arbitrage investing, read Merger Arbitrage Must-Knows: A Key Guide for Investors.

Investors interested in trading in the industrials space should look at the S&P SPDR Industrials ETF (XLI).


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