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Heico Bolsters Repair Business With Avionics Shop Purchase

Heico's latest acquisition broadens its avionics and aviation electronics capabilities.

Parts provider and aftermarket specialist Heico on Aug. 30 announced its Flight Support Group has acquired Optical Display Engineering (ODE), an FAA-authorized Part 145 repair station and a parts manufacturing authority (PMA) focusing on the repair of liquid crystal display screens and modules for civilian and military aircraft. 

Financial details of the all-cash deal were not provided, but Heico said the acquisition should be accretive, or beneficial, to its corporate earnings “in the year following the purchase.”

The latest acquisition follows the Heico model, the company said in the new announcement. “Two years ago, we began the successful integration of select inertial reference capabilities into IAS [Inertial Aerospace Services] as a licensee of Northrop Grumman, and we are very excited to broaden Heico’s avionics and aviation electronics expertise,” said Heico Chairman and CEO Larry Mendelson and his son Eric Mendelson, a Heico co-president and the head of the Flight Support Group. “ODE continues our strategy of expanding our repair and PMA capabilities serving airlines, OEMs and independent repair stations with innovative solutions. Our disciplined growth strategy remains the same and we will continue to look for value-added, accretive acquisitions.”

ODE is in Irvine, California, and will become part of Flight Support’s Inertial Aerospace Services FAA/EASA repair station and Flight Specialties PMA units that are based in Highland Heights, Ohio. Inertial Aerospace Services focuses on inertial guidance repairs. Flight Specialties develops PMAs for a variety of aircraft applications including displays, keypads and mechanical components. Riding an earnings boost due in part from the new U.S. tax law, aerospace parts specialist and serial acquirer Heico on Aug. 28 promised plans to increase market share and buy other companies.                                    

“We will also continue our commitments to developing new products and services, further market penetration and aggressive acquisition strategy while maintaining our financial strength and flexibility,” Larry Mendelson told analysts in a teleconference on the company’s latest quarterly results.

The deal comes just days after Heico leaders alluded to making more acquisitions, during a quarterly financial update to investors and analysts.

For the third quarter of fiscal 2018, the Hollywood, Florida-based company reported net income increased 47% to a record $67.1 million or $0.49 per diluted share, up from $45.7 million  or $0.34 per share a year earlier. Operating income increased 33% to a record $101.4 million, up from $76.1 million in the third quarter of fiscal 2017.

Analysts lauded the results and the company’s prospects. “The third-quarter 2018 results were better than our expectations,” said Canaccord Genuity aviation analyst Ken Herbert. “We specifically expect estimates for the Flight Support Group segment to increase, as we believe the comps are relatively easy for several quarters, and the recent commercial and military aftermarket strength is not showing any signs of slowing,” Herbert continued. “Specifically, the use of older aircraft, coupled with the OEM focus on new production, is creating significant opportunity for [Heico] that is finally getting more fully reflected in the results.”

Heico is such an active acquirer that it lists its criteria online. “For new platform acquisitions, we prefer businesses with $50 million to $250 million in sales,” Heico explains. “For add-on acquisitions that fit one of our existing portfolio companies, we prefer businesses with at least $5 million in sales.” It further prefers companies with headquarters based in North America or Europe, but worldwide is welcome for add-ons. The ODE deal may be just the next step in the company’s acquisition drive.

“Heico appears well positioned to capitalize on expansion of its markets given product introductions and a proven M&A strategy,” said Jefferies aerospace analyst Sheila Kahyaoglu. 

Heico’s revenue has increased at a compound annual growth rate of 26% since 1990, with around 50% of it driven by acquisitions, she noted.

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