July 2022
In keeping with our 72 brand we love discussing compounders , this next business doubled in size every 2 years for 28 years
72 divided by 36 compound means doubling every two years .
We had the absolute pleasure of listening to one of the best podcasts ever with transdigm founder Nick Howley, called 50 x and were astounded at the achievement and thought how little publicity this business is given.
He was interviewed by William Thorndike ( author of the outsiders ).
To listen to this podcast is to get a world class MBA in 1 hour .
Our referral partner Cyril Jinks actually said this was the most insightful founder interview he had ever listened to and worth 5 of his 13 Warren buffet Omaha pilgrimages. Here were his key takeaways
Transdigm started as management buy out by Nick from a multinational . in the space of
28 years , transdigm compounded at 36 pc for nearly 3 decades . that’s 1750 X or $1m would have turned into $1.75 billion .
Nick articulates his strategy like a grassroots working man , his commercial acumen is so easy to see. Here are some outstanding principles that helped him achive it.
He operated in a manufacturing sector for aerospace and aviation sectors providing significant after market parts . He used 5 – 7 times leverage to acquire businesses with low ebit margins , within 3 years he
Would often treble the margin . He felt many owners don’t know what their price should be . Every GM was the custodian of price or as he described it , value based pricing .
How much value does your product bring and what are the genuine switching costs .?? that’s where your price should be. Price is the no 1 driver of any companies earnings and transdigm made sure thw hole company knew that.
Nick belived there are those that make it and those that sell it , most companies have a bunch of nice people who add no value at all , he stripped those companies of those costs .
Heexplained to ALL staff , there are only 3 ways to make more money . Sell more , lower costs or raise price , price is the most important . Transdigm ran a small head office as it bought more than 50 companies over 28 years .
It gives the heads of the divisions full autonomy to execute . Lastly Nick and his executive team believed in accountability so if someone didn’t measure up , that person felt uncomfortable and would leave .
Everyones bonuses were detreminded by the whole company and not your division . If someone was falling behind their colleagues would fire up. Nick paid a modest base but 2 – 3 times extra based on successful performance
Hurdle rates were 20 pc IRR before gearing and that hurdle was usually beaten . transdigm today is a $33b mkt cap with $3 b plus in revenue and close to 50 pc ebitda margins , an incredible compounder
As serendipity would have it , the team behind Nick who run Compounding labs reached out and generously shared their 100 page historical research on this business. If you would like a copy , reach out and we will delighted to send it to you.
