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Strategies & Market Trends : Speculating in Takeover Targets
CTG 6.780+2.4%Sep 30 4:00 PM EDT

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From: richardred9/28/2010 12:37:42 AM
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TransDigm to Acquire McKechnie for $1.27 Billion
By Will Daley - Sep 27, 2010 4:24 PM ET



TransDigm Group Inc. agreed to buy rival aircraft-parts supplier McKechnie Aerospace Holdings Inc. for about $1.27 billion to expand its offerings for planes built by companies such as Boeing Co. and Airbus SAS.

McKechnie, controlled by buyout firm JLL Partners Inc., will post about $300 million in revenue this year, Cleveland- based TransDigm said today in a statement. The cash purchase is TransDigm’s largest, Bloomberg data show.

McKechnie makes parts for aircraft including Boeing’s 787 Dreamliner and Airbus’s A380, TransDigm said. The world’s two largest planemakers are boosting output as airlines recover from the recession and seek more fuel-efficient jets to refresh and expand their fleets.

“TransDigm and McKechnie both make proprietary, sole-source aerospace component parts,” said Jonathan Crandall, director of investor relations for TransDigm. “McKechnie has a complementary product mix to TransDigm’s.”

Products made by TransDigm include pumps, motors, cockpit security doors, flight-deck audio, batteries, ignition systems and lavatory hardware. McKechnie makes external latches for thrust reversers, engine cowlings and cargo doors, along with motors, blowers and valves used all over the aircraft.

“The McKechnie customers are the same customers as TransDigm’s,” Crandall said.

Revenue, Employment

McKechnie gets about 60 percent of its sales from aerospace manufacturers and the rest from replacement components, TransDigm said. The closely held company, based in Irvine, California, has about 1,500 workers.

In August, TransDigm forecast revenue of as much as $825 million for its fiscal year that ends this month. The company’s sales a year earlier were $762 million. TransDigm had about 2,000 workers at the end of September 2009, according its annual regulatory filing.

TransDigm said that it expects to pay for the purchase with senior and subordinated debt and that it has commitments for the full amount, without providing specifics. The company reported cash and equivalents of $258.4 million and $1.77 billion in long-term debt as of July 3.

“We feel very comfortable at this level of leverage, as we have operated at this level in years past,” Crandall said. TransDigm is able to pay down debt quickly because of its cash flow and growth in its existing business, he said.

TransDigm fell 56 cents to $61.68 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 30 percent this year.

Other Bidders

Precision Castparts Corp. and TransDigm were both bidding for McKechnie, people with knowledge of the discussions said last week. Carlyle Group, the Washington-based buyout firm, also submitted an offer for McKechnie last week, the people said.

JLL, based in New York, and Morgan Stanley had been seeking bids for McKechnie for several months. They bought the company in 2007 for about $850 million from Melrose Plc, the London- based component maker. Before that, it was owned by Cinven Ltd., the U.K. private-equity firm.

The company’s issuer default rating from Fitch Ratings is B, five levels below investment grade. Fitch in an April 7 report cited concerns including “the size or number of potential acquisitions going forward and the risks of integrating them successfully.”

Credit Suisse and UBS Investment Bank served as financial advisers to TransDigm.

To contact the reporter on this story: Will Daley in New York at wdaley2@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net
bloomberg.com
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