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What’s TransDigm’s Capital Allocation Strategy?

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Nov. 16 2016, Updated 4:04 p.m. ET

TransDigm Group’s capital allocation

During its earnings call, TransDigm (TDG) outlined and ranked four priorities for its capital allocation strategy. Its top two capital allocation strategies are investing in existing businesses and making accretive acquisitions. The company’s third priority is to give returns to shareholders either through a special dividend or a stock buyback. Paying off debt is the last in line when it comes to decisions related to capital distribution.

In 2014 when there were fewer opportunities related to acquisitions, the company doled out $1.6 billion in special dividends. In 2015 and 2016, however, the company found enough acquisition opportunities and purchased companies worth $1.6 billion and $1.4 billion in the respective years.

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Update on previous acquisitions

TransDigm acquired DDC in June this year. DDC has five manufacturing locations, and TransDigm has reduced the headcount of DDC by 10% to align its cost structure with that of DDC. TransDigm stated that the EBITDA and revenues were trickling in slightly ahead of prior expectations. Going forward, TransDigm expects DDC to deliver EBITDA in excess of TransDigm averages. On Young & Franklin, which the company acquired in September, TransDigm maintained that it was too early to provide an update on its performance.

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