50X
Episode 1 TransDigm: Foundations with Nick Howley
50X

Episode 1: TransDigm: Foundations with Nick Howley

50X

Episode 1

TransDigm: Foundations with Nick Howley

Nick Howley is the Founder and Executive Chairman of TransDigm. We cover TransDigm’s foundations under private ownership, dig into its core value drivers, and explore the business's early M&A motion.

This episode is brought to you by:

Tegus. The team at Tegus has built a full company intelligence platform aimed at streamlining the investment research process. In preparation for the 50X series, we actively used Tegus to gain qualitative insights beyond traditional reported data. To learn more and enjoy a free trial, visit tegus.co/50x.

[00:00:00] – 50X Introduction

[00:01:48] – Sponsorship: Tegus

[00:06:52] – Episode Introduction

[00:08:50] – Nick’s Background pre-TransDigm

[00:11:56] – Original Acquisition from Imo Industries in 1993

[00:15:33] – Thesis and Performance under Kelso & Co.’s Ownership

[00:18:42] – Genesis of Three Key Value Drivers: Price, Productivity, and New Business

[00:21:07] – Building the Management Team

[00:24:05] – Early Lessons on Value Drivers

[00:27:53] – Capital Allocation under Kelso & Co.

[00:28:51] – Sale to Odyssey Investment Partners in 1998

[00:30:26] – Strategy under Odyssey’s Ownership

[00:31:51] – Early Acquisitions and Integration Playbook

[00:37:26] – Early External Crises

[00:41:13] – Snapshot at Conclusion of Odyssey’s Ownership in 2003

[00:43:19] – Building a Decentralized Culture

[00:46:23] – Differentiated Approach to Compensation

[00:52:12] – Sale to Warburg Pincus in 2003

[00:55:51] – Shift to Inorganic Growth under Warburg’s Ownership

[00:58:08] – Evolution of M&A Process

[01:05:37] – Post-Acquisition Expectations and Post-Mortem Process

[01:09:48] – Divesting Acquired Assets to Maintain Focus

[01:11:29] – Embedding Value-Generative Culture via Hiring and Training

[01:13:54] – Quarterly Product Line Reviews

[01:20:31] – Recap of Private Investment Returns and Snapshot pre-IPO

TransDigm: Foundations with Nick Howley

Introduction

Will
We are delighted to be here today with Nick Howley, who has been the driving force at TransDigm since the outset. The company celebrated its 28th anniversary in September of this past year, 2021. The return profile over that period of time is both extraordinary and unique. So the IRR for an original dollar invested in September '93 in the original predecessor transaction at TransDigm has grown at a compound annual rate of 37% for 28 years. So to frame that, if you put $100,000 into that original transaction, it would today be worth $175 million, so sort of other worldly shareholder value creation.It's interesting because it's very evenly distributed across two periods. So over the 28 years, the first 13 years, the company was owned by three private equity buyers, Kelso and Odyssey and Warburg Pincus. The IRR over that period of time was 37%. The company went public in an IPO in March of 2006. The IRR over the 15 and a half years since the IPO, since the company went public is 35%, so remarkably evenly distributed at remarkably high numbers. If you just look at the public piece of that, TransDigm has outperformed the S&P by 15-fold, kind of extraordinary, and its peer group by ninefold. This podcast is called 50X and the math is fun because the total X here is 1,750, which is exactly 35 times 50X. So, we're going to try to go down into the engine room and unpack how all that value was created over a very long period of time. Again, we're delighted to have Nick here with us. Nick, thank you very much for joining us.

Nick
Glad to.

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