Which companies come to mind when you think about the most successful serial acquirers?

Perhaps Constellation Software, Berkshire Hathaway, …

But a company often forgotten on that list is TransDigm.

In fact, here’s what a $1,000 investment 10 years ago would be worth today:

• Berkshire Hathaway: $1,000 → $3,400

• Constellation Software: $1,000 → $5,300

• TransDigm: $1,000 → $8,500

Is Transdigm the perfect addition to Our Portfolio? Or did we miss the flight?

TransDigm - General Information

👔 Company name: TransDigm
✍️ ISIN: US8936411003
🔎 Ticker: TDG
📚 Type: Owner-Operator/Serial Acquirer/Collection of Monopolies
📈 Stock Price: $1,156.5
💵 Market cap: $65.3 billion
📊 Average daily volume: $430 million

Onepager

Here’s a onepager with the essentials of TransDigm:

15-Step Approach

Now let’s use our 15-step approach to analyze the company.

At the end of this article, we’ll give TransDigm a score on each of these 15 metrics.

This results in a Total Quality Score.

1. Do I understand the business model?

Have you ever noticed that on every flight you have been on, the seatbelts are always the same?

• It doesn’t matter if you’re flying in America, Europe, or Asia

• It doesn’t matter if it’s first class or economy

• It doesn’t matter if Boeing or Airbus made the plane

• It doesn’t matter if the carrier is Ryanair, Emirates, or American Airlines

It’s always the same seatbelt.

The reason for this?

There is one company that completely dominates the entire airplane seatbelt market: Amsafe.

And Amsafe is a subsidiary of TransDigm.

TransDigm paid $750 million for the company.

On first sight, this looks completely crazy, right? $750 million for a product that isn’t more than some steel and a strap.

Yet TransDigm has achieved returns of over 20% per year on this acquisition.

Here’s why:

• Producing a typical commercial jet costs between $30 and $50 million

• The average commercial aircraft carries about 200 passengers

• Even if we’re generous and assume an airplane seatbelt costs $100, the total cost for all seatbelts on the plane would be $20,000 ($100 × 200).

Seatbelts are an essential component of an aircraft. You can’t take off without them.

Their total cost represents less than 0.1% of the aircraft’s overall cost.

Given that, do you think companies like Boeing, Airbus, or the airlines really care whether Amsafe charges $50 or $100 per seatbelt?

In addition, Amsafe has a market share of over 95%, approaching a near monopoly.

TransDigm benefits from 3 things:

• Seatbelts are mission-critical

• There is almost no competition

• Seatbelts make up only a tiny portion of the total costs of an airplane

This gives them tremendous pricing power.