Loar Holdings Inc. - LOAR
The second coming of TransDigm? Or perhaps a potential target?
Other than perhaps shares of Intuitive Surgical (ISRG), I can’t think of another stock over the past couple of decades that has been on the list of stocks that skeptics love to hate more than TransDigm Group (TDG). Much like the knock on Defense Department spending and the celebrated $1,000 toilet seats (which for some reason continues to be an issue today despite first being pointed out 40-odd years ago), the skeptics love to point out that the days of outsized gross margins on $100 screws and $20 washers for the supplier to the aerospace industry just cannot last. MBA 101 routinely tells us that companies with outsized gross margins selling rather mundane and easily replicated products are ripe for competition and eventually someone will come along and put an end to that particular game.
The folks over at Loar Holdings (LOAR) happen to know that game very well. Their IPO prospectus points out that prior to starting the company that CEO Dirkson Charles was the CFO at K&F Holdings (an aircraft brake manufacturer) at the time of their acquisition in 2007 by the predecessor of what is today Parker Hannifin (PH). He then went on to work at a private company called McKechnie Aerospace where he was once again involved in their sale, but this time to the aforementioned TransDigm Group (TDG). So if anyone knows about aerospace equipment outfits and how to sell them to the big boys, it’s gotta be this guy.
Since 2012, Mr. Charles and a few of his fellow colleagues from those days have been busy building up LOAR, and have recently brought its shares public. Have they simply taken their experience building up companies in the past with the hope they can profit from an eventual sale? Or are they perhaps seeking to build a company that will potentially rival their prior suitors?
Either way, they may soon find out that becoming the next TransDigm is no sure thing.