March 20th, Precision Castparts Corp. (PCP) agreed to acquire Aerospace Dynamics International (ADI) from The Marvin Group for $625 million. ADI is a major player in the aerospace supplier industry with differentiating expertise in hard metal machining, large complex components, and critical assemblies. Operating out of Valencia, California with a staff of 625 employees ADI has competitive positions across high growth platforms including the Airbus A350.
The cash acquisition will be treated as an acquisition of assets for tax purpose and will be immediately accretive to earnings. The transaction is expected to be completed during the first quarter of fiscal 2015—after the scrutiny of regulatory approvals—after which ADI will be reported as part of PCP’s Airframe Products segment. This acquisition goes hand-in-hand with PCP’s historical trend of acquisition binges. PCP has a good record of instilling better management in the acquired companies which translates to stronger margins. That being said, I do not believe PCP is dependent on acquisitions for earnings growth or is too bloated with acquisitions to have a sustained management advantage.