A few decades ago, Nick Howley and Doug Peacock turned their looming job loss into a USD 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.
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.
Image 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. However, 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 USD 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 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 USD 41 million on Adams Rite Aerospace. That was about one-third the size of TransDigm’s entire business.
Two years later, the company spent USD 160 million on Champion Aerospace. By 2007, it could afford USD 442 million in acquisitions, and by 2010, it paid USD 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 USD 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 USD 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.
TransDigm’s playbook is also best explained through the lens of Return Driven Strategy’s (RDS) seventh tenet: Partner Deliberately.
According to Professor Joel Litman and Dr. Mark L. Frigo in the book, “Driven”:
“Any successful business leverages the partnership of a whole cast of players outside the firm. The right partnerships allow the business to focus on its strengths and rely on others to do things it ought not bother. The strongest partnerships bring unique assets together that allow the firm to innovate, brand, and deliver unique need-fulfilling offerings.”
By acquiring companies, TransDigm built a durable business that’s almost impossible for rivals to compete with. This is because its strategy enabled it to build a firm that benefits from a deep network of partners and a loyal customer base.
The key takeaway from TransDigm’s story is that some of the most profitable businesses aren’t those that sell the flashiest products.
Instead, these high-performing firms have a strategy that enables them to deliver strong returns.
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If you’re looking to gain a better understanding of Return Driven Strategy and Career Driven Strategy, we highly recommend checking out “Driven” by Professor Litman and Dr. Frigo.
Click here to get your copy and learn how this framework can help you in your business strategies and ultimately, in ethically maximizing wealth for your firm.
About The Dynamic Marketing Communiqué’s
“Tuesdays: Return Driven Strategy”
In the book, “Driven,” authors Professor Joel Litman and Dr. Mark L. Frigo said that the goal of every long-term successful business strategy should incorporate the combined necessity of “making the world a better place” and “getting wealthy.”
That is why they created Return Driven Strategy and Career Driven Strategy―frameworks that were built to help leaders and professionals plan and evaluate businesses so they can also help others achieve their organizational goals and career goals.
The frameworks describe the plans and actions that drive returns for anyone in an organization such as independent contractors, marketers, brand managers, communicators, and other people in any field. These actions lead to the creation of wealth and value for customers, employees, shareholders, and the society.
Every Tuesday, we’ll highlight case studies, business strategies, tips, and insights related to Return Driven Strategy and Career Driven Strategy.
In planning, building, or managing brands and businesses, these strategies, case studies, and guidelines will help you choose what specific actions to take and when to take them.
Hope you find this week’s topic interesting and helpful.
Stay tuned for next Tuesday’s “Return Driven Strategy!”
Cheers,
Adrian Kyle Vergara
Content Writer
Valens Dynamic Marketing Capabilities
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