TransDigm To Acquire Data Device Corporation For $1B

Aircraft components maker TransDigm Group Incorporated (NYSE:TDG) inked a definitive agreement to acquire ILC Holdings Inc., the parent company of defense firm Data Device Corporation, from the private equity firm Behrman Capital for $1 billion. Shares of the company rose marginally on the day following the announcement.

The deal will help to expand its footprint in the market of highly engineered, proprietary products with significant aftermarket content.

TransDigm will likely fund the acquisition through cash on hand, existing availability under its revolving credit facility and fresh debt. It expects the deal to be concluded before fiscal 2016 end, subject to regulatory approvals and customary closing conditions.

Data Device is a provider of data-networking, power-control and motion-control products and software for the defense, aerospace and industrial industries. The firm boasts a strong presence across key military aircraft platforms and a growing presence in the commercial aircraft market.

Data Device products are used in aircrafts like F-18 fighters, Boeing (NYSE:BA)'s 787 and 777X passenger planes, C-130 Hercules transports and Airbus's A350XWB.

In fact, the firm expects to generate sales of over $200 million in 2016, with roughly 75% coming from the defense market and the rest from the commercial aerospace market. In addition, about 70% of the company’s sales are generated from the aftermarket, while about 45% of its revenues come from customers outside America.

The acquisition will help TransDigm strengthen its foothold in the military and commercial aircraft market, and is in sync with its strategic aim.

TransDigm recently reported remarkable quarterly results, beating earnings estimates by over 12% on the back of strong commercial aftermarket sales and margin expansion. The company also raised its guidance for the fiscal year.

During the reported quarter, TransDigm’s acquisitions charted robust performance and collectively contributed about $150 million to the top line increase.

Earlier this year, TransDigm had completed the acquisition of Breeze-Eastern Corporation, which designs and manufactures mission critical electromechanical systems, for about $205 million. The acquisition will serve to strengthen TransDigm’s foothold in the aerospace industry, especially in the niche markets of highly-engineered proprietary aerospace components.

The company has seen a number of quarters of disconnected growth trends, but we believe that TransDigm is on a solid growth track again. Improvement in the commercial aftermarket, coupled with significant uptick in defense bookings bode well for its growth picture in the coming quarters. In addition, the aircraft business is taking off globally, and TransDigm is well-placed to capitalize on the growth.

TransDigm presently holds a Zacks Rank #2 (Buy). Other stocks in the aerospace and defense equipment industry are Esterline Technologies Corp. (NYSE:ESL) , AeroVironment CAE Inc. (TO:CAE) and Rolls Royce (LON:RR) Holdings plc (OTC:RYCEY) , each holding the same rank as TransDigm.