![]() ![]() ![]() While expectations were that a PE fund would grab it, another industrial buyer, Eaton Corp., won the contest, paying the hefty price of $920 million (an EV/EBITDA multiple of 12). After being owned successively by two PE funds and bought by Esterline (now TransDigm) in 2011, it was again put up for sale last year. The first concerns Souriau-Sunbank, a $360 million-revenue specialist in interconnection technology for harsh environments. ![]() Two recent deals in Europe (one still ongoing) illustrate this new balance of power. This gives them an additional edge against pure financial investors like private equity (PE) funds, which have historically been strong buyers of such component and subsystem businesses. Such “buying power” is enhanced by operational synergies (for instance, in corporate overheads, sales and marketing), which immediately boost the profitability of the acquired company and can therefore be factored in the offer price. By comparison, most other A&D companies have an EV/EBITDA ratio in the 9-13 range. As it happens, the current EV/EBITDA ratio of the three above-mentioned companies stands at more than 18 (see graph). Thanks to such returns and skyrocketing market valuations, they are able to outbid most other contenders when going after an acquisition target by leveraging the so-called “accretive effect.” This effect boosts the acquiring company’s earnings per share, as long as the price paid for the target as a ratio of the enterprise value (EV) over its earnings before interest, taxes, depreciation and amortization (EBITDA) is lower than that of the acquiring firm. Their track records are impressive: These three companies-with combined revenues of more than $10 billion-have collectively made close to 200 acquisitions and delivered more than 20% average annual growth rate in either profitability or share value over the last 20 years. Behind the big aerospace and defense (A&D) primes like Boeing and Airbus and the “Super Tier-1s” such as United Technologies (UTC) and GE, a very different type of company is shaping the global A&D industrial landscape in a way that may be even more impactful than high-profile UTC-Raytheon-type mergers.Ĭompanies such as Teledyne, TransDigm and Heico are the spearheads of a breed of A&D players dedicated to “components and subsystems,” with explicit and perfectly executed “horizontal” external growth strategies. ![]()
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