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If you were choosing the characteristics that constitute a high-quality manufacturing company, many of the following would be on your wish list. If you could find a single company that has all of these attributes, that, in our opinion, would be a best-of-breed manufacturing and distribution company.
• Regulated, mission-critical products
• Structural cost advantages + scale economics
• Long-term industry tailwinds with growth > GDP
• Global market of customers to sell to with a predictable ordering pattern
• Decentralised business model
• High profit margins
If you add to the above list a management team that has a track record of outstanding capital management, then you end up with a business like the Cleveland, Ohio-based TransDigm Group. TransDigm designs, produces, and supplies aftermarket parts to the aerospace industry, both commercial airline customers as well as the Defence industry. Aftermarket parts suppliers can be wonderful businesses, but having that part working is lost revenue (think airlines, trucks, buses, etc). In the case of the airlines, the regulatory & compliance framework is so significant (and rightfully so) that often there is only one aftermarket part provider. Even still, this might only be for a small percentage of the ~600k parts which go into the construction of a Boeing 737.
This podcast charts the journey of TransDigm from a management buyout in 1993, through numerous private equity owners, to going public in 2006. It has a very refined acquisition playbook and a G.S.D business culture (“Get S**t Done). As the podcast's name, 50x, suggests, this has been a fantastic success story. It has been a lot better than just a 50x return! William Thorndike, the author behind The Outsiders (a book we’ve reviewed previously), is the host of the podcast. Dive deep into one of the highest quality companies in the modern era with those who were behind its remarkable journey.
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