Aerospace parts maker TransDigm to buy Esterline for $3.6 billion

  • Aircraft parts supplier TransDigm has agreed to buy smaller rival Esterline Technologies for about $3.6 billion as it seeks the heft to compete with Boeing and Airbus in after-sales plane servicing.
  • The world's two biggest planemakers have been pushing into the high-margin business of supplying parts and services to boost profits, threatening TransDigm.
  • TransDigm has been building a group of parts producers and suppliers since the early '90s.

Aircraft parts supplier TransDigm has agreed to buy smaller rival Esterline Technologies for about $3.6 billion as it seeks the heft to compete with Boeing and Airbus in after-sales plane servicing.

The world's two biggest planemakers have been pushing into the high-margin business of supplying parts and services to boost profits, threatening TransDigm, which has been building a group of parts producers and suppliers since the early '90s.

The $122.50-per-share cash offer represents a 38 percent premium to Esterline's Tuesday close and is 62 percent more than the stock's closing price on July 19, when reports of the company exploring a potential sale emerged.

Shares of Bellevue, Washington-based Esterline were trading at $115.04 in early trading. The company, which is expected to generate 2018 revenue of about $2 billion, makes cockpit parts and sensors for commercial jetliners, business jets and military aircraft such as Lockheed Martin's F-35 fighter jets.

"Esterline's core aerospace and defense business consists of primarily proprietary, sole source products with significant and growing aftermarket exposure," TransDigm Executive Chairman Nicholas Howley said, adding that the business is highly complementary.

The deal is the latest in a string of acquisitions in the aerospace industry. Last year, United Technologies struck a $30 billion deal to buy Rockwell Collins, and Boeing said in May it would buy aerospace parts company KLX in a $3.2 billion deal.

TransDigm will fund the deal mainly through cash on hand and term loans.

The company said it expected the deal to add to its adjusted earnings within the first year following the close of the deal in the second half of 2019.

Reuters reported in July that Esterline was exploring a sale.

Morgan Stanley is the financial adviser for TransDigm while Goldman Sachs is advising Esterline.