TransDigm (TDG) To Acquire Young & Franklin And Its Units

Aircraft components maker, TransDigm Group Incorporated (NYSE:TDG) inked a definitive agreement to acquire Young & Franklin Inc. and its subsidiaries, including Tactair Fluid Controls Inc. The deal will aid expand its footprint in the market of highly engineered, proprietary products with significant aftermarket content.

TransDigm expects this transaction to be concluded in fourth-quarter fiscal 2016, subject to regulatory approvals and customary closing conditions.

The Liverpool, NY-based Young & Franklin makes highly engineered valves and actuators, and almost all its products are proprietary. About 70% of its revenues come from the aerospace industry, while the industrial gas turbine market account for the remainder.

Its key platforms include Embraer's E2, Phenom 300 and Legacy 450/500 programs, Lockheed C130J, Mitsubishi MRJ, Bombardier's Challenger and Global programs, Bell UH1; and diverse GE, Solar and other industrial turbine applications. The company expects to generate sales of about $75 million for the year ending Dec 2016, with 70% revenues including aftermarket content.

Young & Franklin and Tactair are established manufacturers of proprietary products, with robust aftermarket content. Their innovative products will enable TransDigm to expand its offerings on a range of platforms.

TransDigm has been actively working toward strengthening and boosting its position in the highly-engineered proprietary aerospace components’ niche markets. For this, the company has been eyeing proprietary aerospace businesses with strong aftermarket scope. In May, TransDigm wrapped up the purchase of ILC Holdings Inc. – the parent company of defense firm Data Device Corporation – for $1 billion. Data Device boasts a solid presence across key military aircraft platforms. It has also been enjoying a growing presence in the commercial aircraft market.

Also, early in the year, TransDigm acquired aircraft and weapons lifting and pulling systems maker, Breeze-Eastern. Such accretive acquisitions fortify this aircraft component maker’s foothold in the aerospace industry and bode well for the company’s long-term growth and profitability.

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 along with significant uptick in defense bookings, augur well for its improvement in the coming quarters. In addition, the aircraft business is taking off globally and TransDigm is well placed to bank on this growth.

TransDigm presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the aerospace and defense equipment industry are Ducommun Inc. (NYSE:DCO) and Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) , both sporting a Zacks Rank #1 (Strong Buy), and CPI Aerostructures Inc. (NYSE:CVU) , holding a Zacks Rank #2 (Buy).

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