Recently Precision Capstaprts Inc. (PCP) entered into an agreement to acquire Aerospace Dynamic International (ADI) from the Marvin Group in an all-cash deal. The acquisition is valued at $625 million and is expected to close by the first quarter of 2015, subject to regulatory requirements.
Aerospace Dynamics International is known as the leading supplier of large complex machined parts and assemblies to Aerospace and Defense industries. ADI has the most advanced titanium machining capabilities and is a trusted supplier of major structural components on practically every commercial and military aircraft program for global OEMs along with tier one suppliers.
Precision Castparts will include the ADI business in its Airframe Products segment as the latter’s business is expected to improve the value proposition for the airframe business by expanding its aerostructures product offering and its role on the next-generation aircraft. The Permaswage and Airdome acquisitions had earlier strengthened Precision’s permanent fittings and separable fittings business. This latest acquisition will cause further upward momentum. The ADI acquisition is expected to be accretive to earnings immediately.
Apart from vertical integration, the acquisition of Permaswage also provide Precision with geographic and product synergies. ADI acquisition also supports Precision Castparts growing presence in Southern California, as it has a facility in Valencia, CA. ADI’s core competence lies in large complex components, hard metal machining and critical assemblies. It has strong positions across high-growth commercial platforms, including a significant presence on the Airbus A350.
Therefore, Precision is very optimistic about its acquisition of ADI, which it has been considering for a while, as it already enjoys a favorable position in the current and next-generation commercial aircraft platforms. Moreover, this acquisition comes at an opportune time when aerospace and aircraft manufacturers worldwide are witnessing an increase in orders due to growing commercial traffic.
Leading aerospace companies such as Precision Castparts and TransDigm Group (TDG) have been pursuing strategic acquisitions to attain synergies and cost efficiencies. Acquisitions pursued by both these companies in the recent past have been accretive to earnings.
Precision Casptarts currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the aerospace sector include Alliant Techsystems Inc. (ATK), Teledyne Technologies Inc. (TDY) and Norsk Hydro ASA (NHYDY), all three having a Zacks Rank #2 (Buy).