TransDigm To Acquire Esterline For $4 Billion In Deal That Expands Aerospace, Defense Products

TransDigm Group Inc. [TDG] on Wednesday said it has agreed to acquire Esterline Technologies Corp. [ESL] for $4 billion in cash in a deal that expands its proprietary mix of products for the aerospace and defense markets.

TransDigm expects the transaction to close in the second half of 2019 subject to regulatory approvals. The Ohio-based company said the acquisition should be “modestly accretive” to adjusted earnings in the first full-year of ownership.

Hill Air Force Base F-35As fly in formation over the Utah Test and Training Range, March 30, 2017. (U.S. Air Force photo/R. Nial Bradshaw)

Esterline's avionics systems and engineered materials are used on the F-35 Joint Strike Fighter. (U.S. Air Force photo/R. Nial Bradshaw)

Esterline is expected to generate about $2 billion in sales this year with about 40 percent of sales from the commercial aerospace market and the remainder evenly split between defense and industrial customers. The Washington-based company has more than 12,500 employees worldwide across 28 business units.

TransDigm said that Esterline’s products are complementary to its portfolio and also add more aftermarket business.

“Esterline’s core aerospace and defense business consists of primarily proprietary, sole source products with significant and growing aftermarket exposure,” W. Nicholas Hawley, TransDigm’s executive chairman, said in a statement. “We view this as highly complementary to our existing business. We are confident the combination of Esterline’s leading positions and our proven track record of driving performance will enable us to deliver the private equity-like returns our investors have come to expect from this investment.”

Esterline’s three operating segments are Avionics & Controls, Sensors & Systems, and Advanced Materials.

TransDigm expects to report sales this year of about $3.8 billion, with a little over 35 percent from defense.

Jefferies aerospace and defense analyst Sheila Kahyaoglu said in a note to clients that she views the fit between TransDigm and Esterline as “mixed,” noting that there should be important synergies in terms of cost, customers, and “improved buying power with the supply chain.” She also said TransDigm is “proving to be a great operator.”

However, Kahyaoglu doesn’t see the fit from a business mix as positively, estimating that Esterline’s aftermarket exposure is less than TransDigm's and also not as strong from an intellectual property perspective. She also said that Esterline’s industrial customers are outside of TransDigm’s markets.

The pending sale to TransDigm follows a strategic review by Esterline. TransDigm’s financial adviser on the deal is Morgan Stanley & Co. and Goldman Sachs & Co. advised Esterline and Evercore Group advised Esterline’s board.

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