TransDigm Group Incorporated TDG has recently signed an agreement to acquire Cobham Aero Connectivity for approximately $965 million in cash, including tax benefits. The acquisition, subject to regulatory approvals and customary closing conditions, is expected to close during the first quarter of 2021.
Alongside the agreement, TransDigm Group announced the potential divestiture of a select number of defense-oriented operating units, which were acquired in March 2019 as part of the Esterline acquisition. TransDigm along with outside advisors is currently identifying and approaching potential buyers.
Rationale Behind the Deal
In recent times, rising focus on cost-reduction initiatives, widespread competition and a desire for increased control over production procedures have prompted players from the defense industry to engage in mergers and acquisitions. Such transactions have increasingly gained importance, which enables companies to achieve desired growth by expanding operations, having access to new capabilities and emerging technologies, ultimately leading to enhanced quality of products and services and capturing increased shares in growing markets.
How Will the Acquisition Benefit TransDigm?
Per the company's president and chief executive officer, Mr. Kevin Stein, the acquisition of Cobham Aero will be highly beneficial for TransDigm to expand its footprint, as Cobham Aero has an established and strong presence across a diverse range of both helicopters and fixed-wing aircraft. Its existing customer base includes big names such as Boeing, Raytheon Technologies, Airbus, AgustaWestland/Leonardo and Elbit.
Further, the company expects to witness significant opportunities for the ongoing upgrade and retrofit activities as the demand for faster data-intensive communication continues to grow. The acquisition is also expected to create an equity value in line with TransDigm's long-term private equity-like return objectives.
Other Acquisitions Boosting Defense Space
In April 2020, Raytheon merged with United Technologies to create Raytheon Technologies RTX, which is worth approximately $121 billion. Toward the end of July, BAE Systems BAESY completed the acquisition of the Collins Aerospace Military Global Positioning System (GPS) business from Raytheon Technologies. Interestingly, Heico Corp. HEI completed a total of five acquisitions during the year with the buyouts of Intelligent Devices, Inc. and Transformational Security, LLC.
Price Movement & Zacks Rank
In the past six months, shares of TransDigm have surged 52.7% compared with the industry’s 24.5% growth.
TransDigm currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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