An Irvine aerospace company is selling in one of the priciest local acquisitions this year.
Last week, McKechnie Aerospace Holdings Inc., which makes parts for commercial airplanes and the military, said it is being bought by Cleveland-based rival TransDigm Group Inc. for $1.7 billion.
The sale is believed to be the county’s second largest of 2010 after the $3.2 billion acquisition of Aliso Viejo-based drug maker Valeant Pharmaceuticals International by Canada’s Biovail Corp. That deal closed last week.
McKechnie’s sale continues the company’s revolving door of ownership since it became a portfolio cornerstone for private equity investors in the last decade.
The company has been bought and sold three times in the past five years. It employs about 1,500 people nationwide, including an estimated 200 locally.
This latest sale concludes an exit crafted by the New York private equity firm JLL Partners Inc. and the buyout arm of Morgan Stanley.
They bought McKechnie three years ago for $850 million from Melrose PLC, a London investment company that acquired McKechnie in 2005 from British private equity firm Cinven Ltd.
McKechnie has its roots in Britain, where founder Duncan McKechnie started the company in 1871.
JLL and Morgan Stanley had been shopping the parts maker for months and even fielded an offer from Washington, D.C.-based buyout firm Carlyle Group, according to Bloomberg.
McKechnie, JLL and TransDigm declined to comment for this story.
In a statement, JLL managing director and founder Paul Levy called it a successful transaction for its investors and TransDigm, which gets a growing company with good profit margins.
TransDigm Here
The deal adds to TransDigm’s local operations. The company employs about 200 people in Fullerton at Adams Rite Aerospace Inc., a subsidiary it acquired in 1999.
McKechnie, which makes parts for Boeing Co.’s 787, Airbus SAS’ A380 and A350, among others, is expected to top $300 million in sales this year through its seven business operations.
Two McKechnie subsidiaries are based in Placentia.
Hartwell Corp., started in 1939, designs and makes latching systems to open and close engines, hatches and doors, largely for commercial jets and military aircraft.
The company’s latches are in the original B-52 and hundreds of Boeing planes.
2001 Shift
After the 2001 terrorist attacks, McKechnie’s chief executive reorganized Hartwell’s operations to produce security latches for cockpit doors. The company partnered with Huntington Beach’s C&D Zodiac, which makes the doors.
The move paid off as Boeing and other plane makers ordered more than 14,000 units, positioning Hartwell as a leader in the segment.
Hartwell, along with Wichita, Kan.-based Electromech Technologies and Welco Technologies of Kentucky, account for 60% of McKechnie’s annual revenue. Electromech and Welco supply motors, blowers, valves and actuators.
The other Placentia operation, Hasco, is a support arm for Hartwell customers.
McKechnie’s other subsidiaries make various plane parts, such as rods and fasteners, and provide consulting and maintenance services.
Industry experts say the McKechnie acquisition makes sense for TransDigm, which has similar operations. TransDigm’s customers include Boeing and Honeywell International Inc.
“It is a strategic match with highly engineered products that have long possible lives in the aftermarket,” said William Alderman, president of Alderman & Co. Capital LLC, a Connecticut broker specializing in aerospace and defense deals. “Much of McKechnie is a very good fit with the TransDigm business model.”
The industry will continue to consolidate, especially as financing continues to loosen up, Alderman said.
“I think we’ll see more deals announced,” he said.
The McKechnie acquisition is expected to be financed primarily through debt, which prompted New York-based Fitch Ratings Inc. to issue a negative rating watch on TransDigm and a subsidiary.
The deal enhances TransDigm’s strength in the commercial aerospace aftermarket and adds to its portfolio of proprietary products, Fitch said, but “there are several concerns regarding the acquisition, including higher debt levels, integration risks and the price.”
TransDigm’s debt is set to rise from $1.8 billion to $3 billion after the deal.
The acquisition is expected to close by year’s end.
