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Triumph Group to Buy General Donlee

Zacks Equity Research

Triumph Group, Inc. (TGI) has struck an agreement with General Donlee Canada Inc. (GDI.TO), as per which the former will acquire the latter for $110 million in cash. This amount will be utilized to acquire General Donlee’s outstanding equity and retirement of its existing debt.

General Donlee is a leading manufacturer of flight critical complex machined components. The company’s primary product lines include engine shafts, thrust links, rotorcraft masts and landing gear applications. The acquisition will improve the product capabilities of Triumph Group. Besides enhancing the relationship with the existing customers, the acquisition will further diversify the customer base.

Post acquisition, the acquired firm will be a part of Triumph Group’s Aerospace Systems Group. Subject to customary closing conditions, the transaction is expected to be completed in the third quarter of fiscal year 2014. The company expects the transaction to add $60 million annually to the top line and be accretive to earnings immediately.

Currently, Triumph Group seems to be busy acquiring and adding value to its portfolio. Recently, the company completed the acquisition of the pump and engine control systems business of Goodrich Corporation from United Technologies Corp. (UTX). Prior to that, it took over Primus Composites from Precision Castparts Corp. (PCP) for an undisclosed amount.

Triumph Group’s organic growth has also been reasonably strong based on the addition of products and services, expansion of operating capacity and marketing of a complete product portfolio. Last month, the company posted encouraging fiscal first quarter 2014, which surpassed the Zacks Consensus Estimate on the back of solid execution and lower costs. Specifically, Aerospace Systems revenue grew 56.2% year over year to $219.5 million.

However, we remain concerned about the uncertainty related to defense budgets as the demand for Triumph Group’s military and defense products is largely tied to government defense spending. The company presently retains a short-term Zacks Rank #3 (Hold).

In the near term, we would advise investors to accumulate its short-term Zacks Rank #1 (Strong Buy) peer Alliant Techsystems Inc. (ATK).

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