Textron to Acquire Beech Holdings

Zacks

Textron Inc. (TXT) follows a steady inorganic growth strategy to boost its operations. The company announced that it will acquire all outstanding equity interests in Beech Holdings, LLC (“Beech Holdings”) for about $1.4 billion in cash. Textron expects to complete the transaction during the first half of 2014, subject to several approvals.

Wichita, Kan.-based Beech Holdings is the parent company of Beechcraft Corporation. The company has expertise in designing and constructing several kinds of aircraft, including the King Air turboprops, piston-engine Baron and Bonanza and the T-6 trainer and AT-6 light attack military aircraft. The company provides products and services to individuals, businesses and numerous government organizations.

We note that this is the third acquisition deal signed by Textron in the final quarter of the year. On Nov 22, 2013, the company agreed to acquire two flight simulation and aircraft training product companies – Mechtronix Inc. and OPINICUS Corporation. Textron expects to close the two above mentioned transactions by the end of 2013.

As of Sep 28, 2013, Textron had a cash balance of $0.4 billion. In Oct 2013, the company entered into a senior unsecured revolving credit facility for an aggregate principal of $1 billion. The company will fund this acquisition from a combination of cash on hand and the proceeds from the issue of new debt.

During the first nine months of 2013 the company spent $53 million on acquisitions, up 560% from the prior year comparable period. The surge in expenses was primarily driven by the acquisition of two service centers.

Textron is known to acquire assets having the same line of business, which are immediately accretive. Acquisitions in the past have helped the company to expand its core offerings.

We expect the current acquisition to be immediately accretive, given Beech Holdings’ wide array of product offerings. Textron can match its Caravan and Citation jet line-up with Beech Holdings’ King Air product line. The acquisition will also enable the company to experience operational synergy in terms of improving research and development expertise and enhancing the service network.

Textron currently has a Zacks Rank #3 (Hold). Other well-ranked stocks worth considering in the aerospace and defense sector include Carlisle Companies Incorporated (CSL), CLARCOR Inc. (CLC) and ITT Corporation (ITT), each with a Zacks Rank #2 (Buy).

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