Eric Mendelson

Fast 5: Heico’s Eric Mendelson on Acquisitions

Eric Mendelson, co-president of Heico Corp., talks about the company’s most recent acquisition—it’s 69th—as well as its investment strategy.

Heico has made six acquisitions in the past 12 months—the latest of which is Flight Critical Aerospace’s ELT product line. What is your acquisition strategy for the next 12 months—what are you seeking?

Heico is an experienced acquirer. This was our 69th acquisition since 1997. Most of the companies we acquire continue to operate as separate, stand-alone, autonomous businesses with their original leadership teams. We bring them into the Heico family, whereby we can assist them with credibility, capital, opening doors, relationships—but they continue to operate on their own. Of the 69 companies, roughly 20 of them were product lines, whereby we buy a product line and upfront we combine it with a Heico business. Those are the two models we use. We are always looking for successful entrepreneurial companies that are valued by their customers. We evaluate businesses and are able to permit them to operate within the structure of a New York Stock Exchange traded company yet maintain their own unique flavor. As far as acquisition targets, that is confidential, but in general, they are in the aerospace or electronics industry. We look at businesses for products that are appreciated by their customers, and we look for management teams that fit within our culture and can continue to thrive and operate autonomously. 

When evaluating companies, besides earnings and the things you just mentioned, what do you look for?

Customers who appreciate what the company is doing. They have to be doing something unique. We are very customer friendly and believe strongly in the growth of the aerospace industry and we want to make sure we treat customers very well. Typically when we buy companies, we don’t jack up prices or cut compensation paid to the team members. We are very good corporate partners. We believe that maintaining the unique individuality of the business permits the business to retain the authority and feel responsible for the growth of the business. We try not to run things from headquarters but instead have talented teams out in the field doing their own thing.

The mergers/acquisition market is very competitive now. What makes Heico attractive to the acquirer other than money?

It’s culture. That’s our unique differentiator. Typically when an entrepreneur wants to sell a business, you have two types of buyers. There’s the standard private equity buyer who wants to roll up a particular space and is always focused on the exit. They are looking to get out before they get in. They are not long-term owners so they do things that provide short-term benefits but can also create long-term damage, such as jacking up prices to customers who have no alternative in the short term. They can cut employees’ compensation, especially in the later stages of their careers because they have no other alternative. The second type of buyer is the large corporate acquirer that typically operates an integrated business where they go to market as a single entity and they want all of their businesses to operate and function in the same way. Very often these entrepreneurs were, as we like to say, refugees from larger companies. They got tired of being part of a larger bureaucracy, went off on their own and felt like they could develop a niche. They went and built the business. To sell to a large corporate acquirer who is going to come in and change the essence of what made the business successful is typically not what the entrepreneur is looking to do. What Heico brings is this unique culture, where we are a New York Stock Exchange company with almost a $9 billion market cap. We can continue to maintain the enthusiasm and commitment of these entrepreneurs and not frustrate them.

Heico has integrated many companies over the years. How do you successfully do that and increase their value?

If it is a business that we are already in, we can open doors for these businesses but we make sure that they understand that they have to run with the ball. We can help with regard to capital, credibility, relationships and opening a door, but it’s the business that needs to convince customers they offer the best solutions. That works very well because we don’t blur the lines of the responsibility. The people who want that kind of autonomy and are willing to accept that responsibility and accept the accountability thrive and do very well in that environment. We’re very fortunate in that we’re not trying to provide a full system like an aircraft or an airline that has to standardize and offer the same product across different aircraft. We offer niche products and our customers are comfortable with having a slightly different flavor for all those niche products and having people who understand them very well. We don’t believe in standardization for the sake of standardization. Having said that, for parts repair, people do expect a certain technical competence. So we have an internal technical services group that makes sure the various business units meet Heico standards. Financial, human resources, legal and all of that has to be kosher. But there are many ways to get a job done and we leave that up to the individual businesses. That’s how you maintain the creativity.

Do you have a mechanism to share best practice across the companies in this structure?

We handle that through our business review process. My brother, who is the other co-president of Heico, and I visit all of the companies and look at them in terms of new product development, finance, operations and quality. If we see something unique or something another business can benefit from, absolutely. But it’s done in a more informal way. Very smart people operate these businesses, which number about 50 around the globe. We don’t have to mandate anything. We’ll point it out to the other businesses, which will probably want to replicate it.

TAGS: Components
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