TransDigm (TDG) intends to buy Raptor Scientific for $655 million

TransDigm Group, Inc. TDG recently signed an agreement to acquire engineering, test and measurement services provider Raptor Labs Holdco, LLC., also known as Raptor Scientific. The acquired company offers comprehensive measurement instruments that serve the aerospace and defense industries.

Under the terms of the agreement, TDG is responsible for paying the purchase price of nearly $655 million in cash, including tax credits.

Benefits of the acquisition

The acquisition of Raptor Scientific is expected to further strengthen TransDigm’s position in the aerospace and defense industry, where TDG already has a strong presence. Raptor Labs Holdco’s extensive, patented and technically advanced product portfolio of aerospace and defense test systems and instrumentation is consistent with TDG’s approach to generating value.

The above-mentioned factors will provide TransDigm with the opportunity to expand its customer base, enhance its product offerings and increase its market share in the high-tech aerospace components business area.

The acquisition is also expected to generate equity value in line with TransDigm’s long-term private equity-like return objectives. Overall, the acquisition is likely to play a key role in TDG’s aftermarket growth and product portfolio expansion, which tends to accelerate revenue generation prospects.

TDG takeover frenzy

The military industry has recently seen a significant increase in mergers and acquisitions due to a number of factors, such as an increasing emphasis on cost reduction initiatives, diversifying the portfolio to face competition, and achieving economies of scale and operational efficiencies to achieve long-term goals. These transactions are becoming increasingly important, enabling companies to grow as they see fit by expanding their operations, gaining access to new skills and developing technology, and ultimately producing higher quality goods and services as well as greater market shares.

Being no exception, TransDigm Group has also recently engaged in a number of valuable acquisitions such as this latest one. Prior to partnering with Raptor Scientific in May 2024, the company completed the acquisition of SEI Industries, a leading provider of technologically advanced aerial firefighting products and other liquid handling solutions. In November 2023, TransDigm Group agreed to acquire the electronic devices business of Communications & Power Industries in an all-cash transaction valued at approximately $1.39 billion. Such acquisitions are expected to strengthen TDG’s position as a supplier of components to the aerospace and defense markets.

Peer movements

In addition to TransDigm, other defense companies that have recently made high-value acquisition deals include:

In March 2024 Teledyne Technologies TDY has agreed to acquire Valeport Holdings 2019 Limited and its affiliates, a designer and manufacturer of underwater sensors for environmental, energy, construction and defense applications. This buyout should expand TDY’s marine technology offering.

TDY has a long-term (three to five years) earnings growth rate of 7.3%. The Zacks Consensus Estimate for 2024 sales is projecting a 0.4% improvement from the prior year.

In July 2023 L3Harris Technologies LHX has completed its $4.7 billion acquisition of Aerojet Rocketdyne to strengthen its position in the defense industrial base, increase competitiveness and accelerate innovation for a key propulsion systems supplier. This buyout diversified LHX’s expertise in missile defense systems, hypersonic systems and advanced rocket engines.

LHX has a long-term earnings growth rate of 9.2%. The Zacks Consensus Estimate for 2024 sales is projecting a 9.4% improvement from the prior year.

In April 2024 Curtiss-Wright Corporation CW has completed the acquisition of WSC, Inc. for $34 million. The buyout is expected to expand Curtiss-Wright’s portfolio of advanced commercial nuclear technologies used to modernize existing plants and design new plants, such as advanced small modular reactors.

The Zacks Consensus Estimate for CW’s 2024 sales is for a 6.3% improvement from the prior year. The stock boasts a four-quarter earnings surprise of 9.01% on average.

Price movement

Over the past three months, TransDigm shares are up 11.7% compared with the industry’s gain of 5.8%.

Image Source: Zacks Investment Research

Zacks Rank

TDG is currently sporting a Zacks Rank #2 (Buy). You can see You can find the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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