M&A strategies continue to drive growth! France and Pakistan support TransDigm (TDG.US) and reaffirms “outperform the market” rating

The Zhitong Finance App learned that BNP Paribas reiterated the “outperforming market” rating of TransDigm (TDG.US), pointing out that the company's latest acquisition transaction further proved that its strategy of driving growth through mergers and acquisitions is still progressing steadily.

TransDigm, an aerospace parts supplier headquartered in Cleveland, Ohio, USA, announced that it will acquire Stellant from private equity firm Arlington Capital Partners for US$960 million. Stellant provides high-power electronic products for aerospace, defense, medical and industrial terminal markets. Related applications include electronic warfare, radar systems, communications, directed energy, and space propulsion. The company expects to generate revenue of around $300 million in the 2025 calendar year and currently has around 950 employees in the US.

Data shows that TransDIGM's core business is the design, production and supply of highly engineered aircraft components, which are essential for the safe and effective operation of almost all commercial and military aircraft in the world. The company operates through its wholly-owned subsidiary TransDigm Inc., and divides its business into three main divisions: (systems and components that provide power or control for aircraft, such as actuators and controllers); (systems and components involving airframe and cabin structural applications, such as latches and rod components); and Non-aviation businesses (developing products for non-aviation markets such as ground transportation). The company's business model is mainly driven by mergers and acquisitions. It rapidly expanded its business through the acquisition of companies with proprietary technology, completed more than 60 mergers and acquisitions within 25 years of establishment, and formed a supply chain network covering 123 subsidiaries.

Analyst Matthew Akers said that TransDIGM's agreement to acquire Stellant highlights the momentum that continues to advance its merger and acquisition projects, and also helps ease the market's concerns about the growing scarcity of high-quality M&A targets. Analysts said the deal is highly in line with the M&A “style of play” that TransDigm has always adopted, and further strengthened the market's confidence in the sustainability of its ability to create value in similar private equity models.

BNP Paribas believes that Stellant is a good match for TransDIGM on a strategic level, including its approximately 50% aftermarket exposure and the bank's perceived potential for operational improvement. According to estimates, Stellant's per capita sales are about half of TransDigm's current level, which means there is room for increased efficiency. Assuming a synergy of approximately 4% of the sales of the acquired business (roughly in line with historical aerospace and defense industry deals), analysts expect the deal to increase TransDigm's earnings per share by about 1% in fiscal year 2027; under more aggressive pricing assumptions, the increase could reach 3% to 5%.

Analysts added that a series of recent transactions have maintained a steady pace, making the view that “TransDigm's merger and acquisition pipeline is drying up” increasingly untenable. Based on this judgment, analysts raised the stock's target price from $1,775 to $1,900 on the grounds that a higher comparable company valuation multiplier was used while still giving TransDigm a conservative premium over its historical trading level.