Today's episode is the first in a series of four on TransDigm, an aerospace components manufacturer that has appreciated over 1,750X since its inception nearly three decades earlier. In today’s episode we are joined by Nick Howley, TransDigm’s founder, long-time CEO and Executive Chairman. We explore TransDigm’s foundations under private ownership, digging into its core value drivers, decentralized culture, differentiated compensation program, and early M&A motion.
For the full show notes, transcript, and links to mentioned content, check out the episode page here.
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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.
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50X is a podcast that dissects the anatomy of extraordinary long-term investments. The show is hosted by Will Thorndike and the team at Compounding Labs, and brought to you in partnership with Colossus.
In each episode of 50X, we look in detail at an investment that has appreciated at least 50-fold. From the seat of the professional investor and occasionally the CEO, we explore its origins, evolution, and eventual outcome, studying key themes around long-term value creation ranging from operations, capital allocation, and culture to pivotal buy and sell decisions. To enhance the quality and depth of our interviews, we rigorously study each asset in advance, diving into all available public and private resources.
Learn more and dive into our research at 50xpodcast.com
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Show Notes
[00:00:00] – 50X Introduction
[00:01:48] – Sponsorship: Tegus
[00:06:52] – Introduction to Nick and TransDigm
[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