Who is Transdigm?

Transdigm is DoD's current bad boy. Yesterday we reported that DoD will not allow its contracting officers to use commercial item or sole source purchase mechanisms to buy from Transdigm or its 150 subsidiaries. All future purchases must be supported with cost or pricing data (either certified or non-certified, depending on whether a threshold is met). See DoD Scales Back on Sole Source Purchase Justifications from One Particular Supplier. This all came about after Congress asked DoD's Office of Inspector General (OIG) to audit contracts awarded to Transdigm. The OIG found that Transdigm made significant profits on sales to the Government, essentially by refusing to provide any support for their pricing, employing a 'take it or leave it' pricing strategy.

Who is Transdigm? Transdigm is a company that most people - even within the Government procurement community - have not heard of. However, some of the company's 150 plus subsidiaries might be more familiar. Esterline, who Transdigm acquired recently, is certainly a familiar name up here in the Pacific Northwest. The company was formed in 1993 and 10 years later, was acquired by a private equity fund in a leveraged buyout (a leveraged buyout usually means there is a significant amount of borrowed money). The company went public with an IPO (initial public offering) in 2006 and its stock is now traded on the NYSE.

Transdigm sales have grown from $435 million in 2006, the year the company went public to $3.8 billion in 2018. This rapid growth has been primarily through acquisitions. Transdigm has acquired more than 60 companies since its inception. Along the way it has also acquired a lot of debt. Its long term debt sits at $12.5 billion and more than half of the company's cash provided by operating activities goes toward payments on that debt. At the end of 2018, the company employed about 10,000 people.

The company is and has been profitable. The companies that Transdigm acquires are those where competition is slight and high profit margins can be maintained. Consider the following quotes form Transdigm's on-line presence.

• Private equity-like capital structure and culture - our longstanding goal is to give our shareholders over time, private equity like returns with the liquidity of a public market. We are focused on both the details of value creation as well as careful management of our balance sheet.
• Aligned with shareholders - we view our capital structure and allocation as a key part of our efforts to create shareholder value and allocate capital and structure our balance sheet to have the best chance to maximize returns to the shareholders. Everyone at Transdigm thinks and acts like an owner.
• Proven strategy. Proven performance A unique and consistent business model in the aerospace industry that has consistently created intrinsic shareholder value through all phases of the cycle.
• A proven value base operating strategy - a simple, well proven value-based operating strategy, based around our three value-driver concepts - profitable new business, productivity and cost improvements and value-based pricing
• Focused and disciplined acquisition strategy - we acquire proprietary aerospace businesses with significant aftermarket where we see a clear path to private equity like returns. Since our formation in 1993,  we have acquired over 60 businesses
• Propriety aerospace products with significant aftermarket - TransDigm Group Inc. is a leading global producer, designer and supplier of highly engineered aerospace components, systems and subsystems for use on nearly all commercial and military aircraft in service today.

Congress has already seen to it that Transdigm paid back $16 million to the Defense Department as a result of its business practices and if Congress gets its way, an additional $350 million.