uploads/2016/11/transdigm-private-equity.jpg

TDG Boosted Its Proprietary Product Revenue with This Acquisition

By

Updated

TransDigm increases leverage to issue special dividends

TransDigm (TDG) has increased the size of its existing term loan facility by $650 million to facilitate a one-time special dividend of $24 per share. According to the company’s guidance, its fiscal 2016 EBITDA (earnings before interest, tax, depreciation, and amortization) is expected to be ~7.4x.  

However, it’s important to note that TransDigm has a bloated leverage structure by design rather than by necessity. In its investment conference held in June this year, the company’s management stated that it uses debt to generate “private-equity-like returns.” The company’s track record of generating free cash flow supports its capacity for the debt it currently has on its balance sheet.

Article continues below advertisement

TransDigm acquires Young & Franklin

On the September 23, 2016, TransDigm completed its acquisition of Young & Franklin and its subsidiaries for $260 million. Young & Franklin is a manufacturer of highly engineered valves and actuators, and all of its revenue is derived from proprietary products.

This business strategy is similar to TransDigm’s. TransDigm derives ~90% of its sales from its proprietary products. Young & Franklin’s revenue is expected to be ~$75 million in the year ending December 2016, with 70% of its revenue coming from the aftermarket.  

In terms of end markets, 70% of Young & Franklin’s revenue is derived from the aerospace (XAR) end market, and the rest comes from the industrial gas turbine market. Major programs on which Young & Franklin’s products find a place include Embraer’s (ERJ) E2 and Phenom 300 and Legacy 450/500 programs, Bombardier’s (BBDRF) Challenger and Global programs, and Lockheed Martin’s (LMT) C130J and Bell UH1 (TXT) programs.

Advertisement

More From Market Realist