A few decades ago, Nick Howley and Doug Peacock turned their looming job loss into a $66 billion opportunity.

Howley and Peacock were senior executives at a small conglomerate called Imo Industries. Imo owned a handful of aerospace businesses in the twilight of the Cold War.

The company used the junk-bond market to fund several major purchases that boosted its offerings like power-transmission supplier Incom, and Varo, which made night-vision equipment.

This acquisition strategy helped Imo triple its revenue between 1987 and 1991. It seemed like the good times would never end.

But then, the Soviet Union collapsed.

With the Cold War over, the U.S. no longer needed to fund a robust defense budget. As a result, Imo’s biggest customer no longer bought from it like it used to.

Photo from Unsplash

The company went from its heyday to an all-out panic. Revenue was shrinking right as bondholders came knocking. To make matters worse, the company was facing roughly 7,000 lawsuits alleging asbestos-related injury. 

It looked like it might be the end of Imo. But Howley and Peacock weren’t ready to give up…

Turning A Crisis Into An Opportunity

Howley and Peacock oversaw businesses like Wiggins Connectors (fluid system fittings), Adel Fasteners (clamps and fastening systems), and Aeroproducts (pumps and power control components).

These segments were still profitable, but with defense spending declining, they’d been getting less attention while Imo’s leadership focused on paying down the company’s mounting debt.

Nobody at Imo had the bandwidth to focus on a shrinking aerospace industry anymore… except for Howley and Peacock.

They led a leveraged buyout of Imo Industries’ aerospace businesses for roughly $56 million.

Imo got the cash infusion needed to keep the lights on while Howley and Peacock’s got a second shot at building a strong business.

The pair named their new company TransDigm (TDG) and operated it with a simple, yet ambitious business model: Acquire small aerospace suppliers.

Acquisition As A Growth Engine

TransDigm’s acquisition strategy focused on companies that had already received approval from the Federal Aviation Administration (“FAA”), positioning them as a crucial vendor for aircraft makers.

FAA approval is a long, complicated process. Aircraft operators rarely change suppliers once a part is approved. That created a huge opportunity for suppliers like TransDigm, enabling these companies to enjoy decades of “replacement demand” after their parts are installed.

TransDigm started small. Its first “major” deal came in 1999, when it spent $41 million on Adams Rite Aerospace. That was about one-third the size of TransDigm’s entire business.

Two years later, the company spent $160 million on Champion Aerospace. By 2007, it could afford $442 million in acquisitions, and by 2010, it paid $1.4 billion for McKechnie Aerospace.

Since Howley and Peacock struck out on their own in the 90s. TransDigm has acquired over 100 smaller companies, growing into an aerospace giant worth over $60 billion.

TransDigm’s massive growth wasn’t fueled by aerospace expertise alone. It leveraged a high-growth formula—find a supplier with a captive customer base, buy it cheap, and let the replacement demand do the rest.

That formula—which turned a $56 million buyout into an industry behemoth—still works today. Strategic acquirers continue to roll up niche, regulatory-approved suppliers with a strong customer base.

The key takeaway isn’t the fascinating story behind TransDigm’s beginnings. Rather, the origins of the firm is a reminder that some of the most profitable businesses aren’t the flashiest ones.

The most durable businesses aren’t always the ones with the most exciting products or the loudest brand names.

They’re the ones with structural moats, whether that comes in the form of regulatory approval, high switching costs, or a captive customer base, that make it difficult, if not impossible, for competitors to replicate.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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