JLL Partners to sell McKechnie for $1.2Bn

Private equity firm JLL Partners intends to sells its share in McKechnie Aerospace Holdings to aircraft parts maker TransDigm Group Inc in a deal worth $1.27 billion in cash. It will be TransDigm’s biggest ever acquisition. Shares of TransDigm were $64.65 on the New York Stock Exchange on Monday, a year high, before dropping to $62. The deal will bring TransDigm’s total debt to about $3 billion.

(Reuters) – Aircraft parts maker TransDigm Group Inc (TDG.N: Quote, Profile, Research, Stock Buzz) said it will buy rival McKechnie Aerospace Holdings Inc for $1.27 billion in cash in its biggest ever acquisition as it looks to beef up its aftermarket presence.

McKechnie Aerospace, controlled by private equity firm JLL Partners, makes parts for aircraft such as Boeing 787, Airbus A380 and A350 and is expected to generate more than $300 million in revenue this year.

Shares of TransDigm touched a year high of $64.65 Monday on the New York Stock Exchange before paring gains to trade at $62.

“This is the first sizable acquisition opportunity that we have seen in the last three or four years,” Chief Executive Nicholas Howley said in a statement.

The deal comes months after JLL, which had acquired McKechnie in 2007 for $855.6 million, put the company on the block for an auction sale that reportedly attracted several buyers including Carlyle Group and Precision Castparts.

Earlier this month, Reuters had reported JLL was seeking $1.2 billion for McKechnie and was in the process of entertaining the second rounds of bids. [ID:nN10174401]

TransDigm’s last acquisition of Semco Instruments for about $74 million was completed on Sept. 3.

Kenneth Herbert of Wedbush Securities said the valuation for McKechnie seemed slightly rich at about 12-13 times EBITDA.

Herbert said McKechnie’s fastener line of products was not very proprietary in nature and might hamper TransDigm’s pricing power.

TransDigm’s products include actuators and controls, ignition systems, audio systems and cockpit security devices, while McKechnie makes fasteners and latching systems and sensor rods.

About 60 percent of TransDigm’s business comes from aftermarket sales, while OEMs account for 40 percent of sales. McKechnie’s business mix is roughly the opposite.

McKechnie, which has 1,500 employees on its rolls, mainly serves the commercial aerospace market.

TransDigm said it will finance the acquisition primarily through a combination of senior and subordinated debt.

This will bring TransDigm’s total debt to about $3 billion.

“Absent any additional acquisitions or other capital market actions, TransDigm should begin to de-lever relatively quickly,” the company said in a statement.

Credit Suisse and UBS Investment Bank acted as financial advisers to TransDigm, while McKechnie and JLL were advised by Morgan Stanley.

Shares of Cleveland-based TransDigm were trading down 24 cents at $62 Monday on the New York Stock Exchange. The shares have risen 60 percent since touching a year low in October.
(Reporting by A.Ananthalakshmiand Megha Mandavia in Bangalore; Editing by Jarshad Kakkrakandy and Saumyadeb Chakrabarty)