YouSaid · the spoken record

Nick Howley

lines on the record: 106
first: 2022-07-14
most recent: 2022-07-14
sittings or episodes: 1
sources: podcast

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“So, for the latter two buyers, the lion's share of the capital was being used to purchase ownership from prior owners and relied heavily on leverage. So the returns don't perfectly foot between primary and secondary equity. But just to tick through those, and by the way, no matter how you look at the returns here, they're like Babe Ruth's statistics from the 1920s. They're just unbelievable. So the returns to Kelso's original $25 million of equity in 1993 were 14 times MOIC with a 58% IRR over roughly a 10-year holding period. They pulled the bulk of their capital out in the sale to Odyssey in 1998. But as you mentioned earlier, Nick left a slug in there through 2003. Odyssey's returns were exactly 5x with an IRR of 42.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“As we wrap up the private phase ahead of TransDimes IPO in 2006, I just want to put our heads up for a minute and check in on returns. And in doing that, I think it's useful to highlight the distinction between primary and secondary capital and relatedly returns. So primary capital is our focus in this podcast, and that's the returns to the original equity investment. So in TransDimes case, that's the original $25 million of equity invested by Kelso in 1993. And the reality is the company has never required any additional primary equity. It's been able to finance all of its growth over the last 28 plus years now with internally generated cash flow and related debt capacity. The returns there are pretty spectacular and we'll discuss those in a minute here. There's another level of return, however, which is also relevant, which is the returns to the individual private equity buyers.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“And it gets it very finite. In other words, you're not, it's not big grand statements. You're dealing with it with very finite slices. My partner, Doug Peacock, used to say, if you want to confuse, you conglomerate. If you want to illuminate the segregated things. Yeah, the best disinfectant is sunlight. Yeah, right.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“On productivity and new business, we tend to use a rule. There's no great magic to it, and it's worked. We need twice as many prospects as you're sure you're going to close on your list when we go into the year. And same thing on cost takeouts. You got to get 100 out. We need at least 200 things you're pretty sure of.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Consistently getting four and a half percent increase. You have similar product and you're getting three. Why? And this is the benefit of sort of the ownership culture. If someone is consistently underperforming, the system starts to reject them. Holdman, this is my company too. We're partners. What's happening here? So it isn't just Kevin or George or the EVP, the rest of the place is starting to, what's going on here? We're all partners here. So that's the price on the cost. They all have projects and you have some target for productivity that was established in the plan and it's X out of these materials and Y out of this and they run through them. We're going to get 11 people out and we got nine or we're going to get so much out of the aluminum and we got this. You run through them with explanation. Same thing. It's clarifying to have to face your issue once a quarter. Same thing with new business. Here's the programs. Here's where I thought I would get. Here's where they're going good, bad, and different. We tend to use”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's right. If you looked at the standard slides they have, again, there's the income statement and there's the bookings by segment and the shipments by market segment. There's always one-on-pricing. And we typically divide the pricing. It's always, if a business is unique, they might have an extra bar, but it's always a graph that shows commercial OEM against plan, defense OEM against plan, commercial aftermarket, defense aftermarket, other probably breakout business jet too. My plan in the aftermarket maybe was to get 6% and I've gotten 5.8 or 6.3. OEM, the plan might be one and a half percent because you're locked into contracts and that's okay as long as we know that you're getting it and everyone goes through and explains it every quarter. Now it has a therapeutic effect that if we're doing a lot of these so if you are servicing the same market as somebody else is”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“As I always say, you can pretty quickly tell whether someone's going to buy into this. And one of the things that I always use with this is smooth, we don't have a lot of time for. The line in my business experience between smooth and duplicitous is very, very thin. It's very nuts and bolts. You're going to get your profit margin up. You're going to sell more stuff. You're going to get the price up, the cost down and develop new products. I don't know what else you'd be working on.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Not very long. I can state the issue probably more clearly now than I could before, but I would say within probably two years of owning TransLand that was starting to become the mantra. It got more elaborate. We got better at training. We developed more training materials. Our pitch got better. But I would say it was the fundamental story within a couple of years by 1995.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. We're pretty rough on sloppy thinking. I mean, the fact that things go bad, okay, everybody knows that. Things go bad sometimes. But there's no excuse to have sloppy numbers, incomplete things. You can't explain something. We're pretty tough on that. With the logic, if we're taking our time to sit here for 20 minutes, we expect you to be prepared.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“For many years, when we were smaller, it was me and all of them. It's always the EDP, it's always the president. So let's say we have four sessions, a quarter maybe, two days in Cleveland, two days somewhere else. So if there's 50 companies, that's 12 businesses in each one. So there's 12 presidents, 36 product line managers, 12 sales and marketing managers, and we probably rotate the other people. The operating guy, the controller, the others, they kind of rotate through them. More often the COO is always there as we get bigger, he frankly just, and he and Kevin, the CEO, they can't be at all of them. They have to stagger them some. But typically the CFOs there, they're pretty intense.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“And they're about 15 or 20 minutes long, and they're fairly intense. It keeps everybody up to date on the business pretty quickly can start to assess what product line managers are upwardly mobile and frankly who's hiring good people and who's not. It's a reasonable time commitment, but I think it's probably the best integrative mechanism we have in the company”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yep, and they're divided into three, ish, say, on average product lines. So that's 150 product lines. My number might be a little more a little less. And we do product line reviews every quarter. We used to do them all in two days before the board meeting. Then they got too big and we couldn't do that. Now we move them around the country a little bit. The two days before board meeting, we do them. We do another two days somewhere else, sometimes in Europe, sometimes on the West Coast. The presidents attend for whatever companies are doing that return. The product line manager, typically the sales and marketing manager, we rotate other people through. Each product line gets up. Product line manager has a fairly standard format. How's he doing against this plan? The obvious stuff, booking sales, profitability.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, typically that's maybe six courses, and we typically work them through probably once through. And then we reinforce each quarter, we do these product line reviews. There's typically an hour in the middle of that where we pick something and reinforce it.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Which again, six or eight businesses report to each one of them, they are primary culture carriers. If I had to say, other than dealing with normal business problems that come up, they typically have an integration going on. A key part of their job is to just keep reinforcing this culture and sorting people out that don't fit it. We run a lot of training courses. We run them on just culture. We run them on autonomy. We run them on pricing. We run them on cost reduction. I would say we probably have three to five standard cultural value creation training pieces that we cycle. A lot of people through every year. It's hard work. You have to keep at it. It can slip out on you quick if you're not careful.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say first and foremost, you have to hire people or bring people up that believe and can work in that culture. They get the value generation. They're invested in it and believe enough that they can carry it. There you have to be very diligent. If someone doesn't get the value creation concept and how you make money and that you're in this to create equity value, you've got to either convert them fast or get them out quick. Because you can't have somebody in the key position that doesn't buy into it. I mean, it doesn't mean they're a bad person. It just means they aren't going to fit in this culture. And I would say if I made any mistakes earlier, it was I would stick with them too long as practical reality, it's obvious pretty quick and you just got to get them out. I start with that. The presidents of each portfolio company have to be a culture carrier. I would say the roles of our EVP”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Get that's okay for a little while till you start to put if you do too much of it. The good stuff isn't getting valued at the good multiple. Unless we have a very good reason, we've tried very hard not to do that.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Again, a key portion of our diligence is to figure out what's proprietary, what's sole source, what has the significant aftermarket content. And when we see some of it doesn't, the question is, is there enough in there to be worth it? Usually, sometimes we've been lucky, but usually when we look at them, we're going to lose on the trade. It's going to sell as a proprietary business. We're going to unload some of them as non-proprietary. We basically just put that into the cash flow. We assume we're going to buy it then and sell it at seven. You could look at is increase in purchase price. We just build it into the cash flow and say, it works. So essentially, you're paying more for the businesses you want. So it has to work. You have to be able to improve them enough to carry that. What we have tried not to do, and I wouldn't say it's perfect, but we're pretty good at it. You know, you can always play the game that in the public world I'm getting value to the higher multiple. So if I stick a couple of sphinkers in there, nobody will notice they'll still.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, if you define it as one of the key roles, I would say yes, unless we are closing the business. Sometimes we buy a business. Our plan is to close it, move it into another business. And we've maybe done that 25 times. So you ought to exclude those from the calculation. If it's going to be a standalone business, we almost never don't put a transline person in there somewhere.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“And I would say, well, the way we look at it, we bought more like 80. When we buy a holding company, we unpack the holding company. We say the holding company has no value. We just blow it away and say we really bought five businesses.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“No, I don't think we have any where we didn't get close to a PE return. Now, Simon hasn't got there the way we hoped. It's been a rougher road.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Against that base case. Well, if we're not meeting that, we're pretty, I would say rough on why not. We believed we bought it conservatively. So if we're not meeting it, that means either we're not getting cooperation or we made a mistake. And if we made a mistake, we're going to figure out how do we make a mistake and how are we going to fix it.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“President or the sales of marketing person because the pricing and customer portion of it is going to be a significant value generation up front. If we have difficulty with the cost restructuring, we may replace the operating manager quickly. But usually we can get by that. And then we track it each quarter. How are you doing? How are you doing against the price? How are you doing this segment? How's the cost getting out? And how most importantly, how are we doing against the margin expansion?”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“First, we typically have a team that's on the diligence and the acquisition and they become very involved in the integration process. I mean, we have a detailed plan. We have a plan for price. We have a plan for cost takeout. We have a plan for organization change. We are usually going to change the organizations to look like our organizations, which are going to be very clear and simple. There'll be typically a president, head of sales and marketing head operation, head of finance, maybe engineering, unless we can get it into the sales and marketing. And then these product line structures. So we'll do that almost immediately. It is unusual when most of the existing management survives. Typically, we are going to put our own person.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, the way we look at them is five years will typically you have to cut it in half to make the math work. 10 has to go to five over the five years. Now I would say we usually significantly exceed that. So we're probably there in three years or something like that. We're always run ahead of it. And we purposely are doing that. We want to be a conservative in the models.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“We started it off at 20%. If something got too close to 20%, we got nervous. This is a crack reality. Most of them were probably 25, 26, 27, or we get nervous. Now, as things got bigger, they got closer to 20, frankly, in the models.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's right. And usually we don't have to even get that tight to 20. Sometimes we do, but usually we don't. And the reason for that is, I believe, is that we have more conviction in our ability to expand the margin typically than, say, a PE bidder or many strategic bidders will.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Front for the OEM, you're not going to be rich, but you don't have to lose money doing that. So we lay out our best guess at the pricing over the next four or five years by account or by segment. We then go to the cost structure and we say, again, we go through in a fair amount of detail, where do we think we can get the cost out? And much of it is frequently in headcount. We can usually do something with the outside buys, but that's sort of a slower change. But we go through department by department and we've done enough of these that we got 10 accountants. You probably only need seven. And if you got 12 inside salespeople, and we go through and lay that out, and that gives you another cash stream. So we take that to the EBITDA that we generated from the organic growth. We add it, gives us another EBITDA stream. We take off the debt, take off the capital expenditures, give us the cash flow, sort of reduces the debt as we go forward, and we sell it at the end of five years.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Game margins, unless we do something, and there's only a few things we can really do. We can move the price, we can move the cost, or we can generate new business. We usually give very little credit to new business because it's very hard to assess from the outside looking in. So it usually becomes, can we price the product differently as the management fully recognize the value they provide? And we go through account by account on that, at least as best we can in the diligence period. And the answer is usually you can get it up, down, or the same. And if the answer is down, we're probably not buying the company. And frankly, if the answer is the same, we're probably not buying the company. There we typically see people underestimate the strength of their franchise in the aftermarket over and over and over again. And they also overestimate how much they have to give away to get specified enough.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“There are a relatively few number of airplane designs in the world. So almost everything sold can be tracked back to some airplane design, and there aren't that many of them, either in production or out in the field being used, often particularly smaller companies don't exactly know that, so sometimes you have to make some estimates on it. But once you can break things into its shipset component, I'll say estimate or guesstimate it, you can make a pretty good guess of what the future is going to look like. Now, you'll be wrong when you miss an economic cycle, but you can pretty well guess the miles flown, which will drive the aftermarket and the production rates if it's still in production that will drive that. We can forecast the business with some reasonable predictability. And that gives us a revenue and a EBITDA flow. We assume there's going to be no increase in the EBITDA.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Lever's IRR. Now we reset it each year, but it usually ended up somewhere around 50 50. So we would go through the business. First, we had to figure out, is it proprietary? Is it a airspace? And is it sole source? And there's a significant aftermarket. Hopefully we could figure the aerospace out. But sometimes the proprietary and aftermarket isn't so clear, as you may suspect. Everyone says they're proprietary, and usually they're not. So that takes a little sorting out, but we got pretty good at figuring that out. And sometimes, surprisingly, the aftermarket isn't very clear. Many people just simply don't track it. They lose track of it once they sell it. But we usually can get through that pretty quickly. We then divide a business into a ship set content.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Credit for some vague concept of strategic fit. You had to see a clear path to a more than 20% IRR on a five-year hold. We assumed that we buy and sell at the same multiple. In other words, no arbitrage or even arbitrage down a little if we think we had over buy. We typically assumed we were going to capitalize the business generally the same way as the parent was capitalized, roughly half that half equity.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“And we retained two brokers that were a modest retainer, mostly paid on success. Small ones, one in California, because there's a ton of work out in the West and one in UK. And it turned into a functioning organization that, frankly, I track, like a sales force. You know, how many contacts we make it, how many letters we put now, how many dinners we doing, all that sort of thing. It became a much more professionally analytically run kind of a process. The way by which we evaluated acquisitions really didn't change a lot. Perhaps we got the templates a little more formal, but conceptually didn't change. Essentially, we were looking for the same thing. Proprietary aerospace businesses with significant aftermarket where we could see a clear path to a private equity-like return. We looked at each business by itself as a standalone PE buy. As I say, a no-”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“The advantage there was they understood the business, they understood the value creation, they had enough stake in the game that we could quickly assess whether these things fit and as importantly do we think we could squeeze the value out of them and either decide to hit or hold very quickly. Under them we put one or two analysts depending on where we were.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Our template for analysis was pretty well developed fairly early, and I'm willing to explain that some, I would say the organization that we use stepped up very substantially some time towards the end of the Odyssey, beginning of the war process. We began to look at the M&A much more as almost like a sales activity. In other words, we believed before that most things in our space we saw. As a practical matter, that wasn't true until we really ramped it up. And we did this a couple of ways. One, we established the clear MA function, which was much was me before this. We took a couple or one of the key guys who's an operating guy with a lot of industry experience and market experience and made him in charge of that. First one was Al Rodriguez, who was with me since the beginning, and then he died young and untimely, and Bernie Iverson took it over.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Private equity guys are very involved in capital allocation through their hold. Now, this was my third turn here, so I was pretty familiar and increasingly involved in that as we went forward. But as Warburg got in, it became clear that they were going to be transitioning out sooner rather than later with a public world. And it became an increasing part of my responsibility. Fortunately, we had a pretty strong operating team under me because many of these guys had been with me since the beginning. It both allowed me to back off a little bit of that and focus more on the capital allocation and get ready to drift into the investor relations and still not have to let any gas off on the operating activity.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“It was ramping up. We had the playbook. We had hit our stride then. Generally if a business meets our criteria, we're not going to lose it on price. In all probability, we're going to see them and they're going to be at 15, 20% kind of EBITDA margins. And if it meets our criteria, we're going to be able to get it to 40 or higher than 40. And very few strategic are going to buy something like that. First, they're usually not that sexy and they don't fit with their overall picture. And that's going to scare PE buyers off. As you know, they can't bet on that kind of margin expansion.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“We clearly started to ramp up the acquisitions even more. But as a general rule, the way you should usually think about that is this market grows four to five percent real a year, depending where you are in the OEM cycle. We'll get at least that in pricing on top of that, 9-10%. That has been the organic growth rate of almost everything we've bought through the whole period of time. And then the rest of its acquisitions.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, they're continuing to grow, but I'd say if they were 40 ish going in, they were probably 60-ish, something like that coming out. They were continuing to grind out price margin and cost reduction. Their core margins were still moving probably a point a year.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Heavy for at the time. And they were disappointed and they were right about on the price. Our concern there was they couldn't speak for 500 million. They had to bring in partners. And at this point in some other situations, I'd had some experience with clubbed up deals. But I think, as you know, Will, if you club up a deal, the dumbest guy controls the speed of everything. So that concerns us. And Warbur Pinkis did a good job of that one. He did a good job of selling the management team. Not that Berkshire didn't, but Warburg did a good job. T.H. Lee, not so good.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“They focus on why the EBITDA was not sustainable and why it was a trick because they had an obvious issue. Why are these guys selling the same thing we're selling making 40% and we're making 18? So they all would have some bunch of diligence questions. It all went around. You're liquidating the business, you know, you're not doing it right. some kind of accounting scam and then they convince themselves and go away The three finalists then were Warburg Pinkis, Berkshire and T.H. Lee and we ended up with Warburg Pinkis. Berkshire, I knew the guys at this point. This is, I think when I met Rob. I may have met him in the 98 process, but I know that he was very involved in the 2002-2003 process. And I knew Brad Bloom. He was my section in Harvard Business School. They were very hot.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“So we did the same thing. I think Morgan Stanley sold it this time through the same kind of drill. Now we were, you know, you probably needed 500 million of equity to do it this time. I think the cost was about a billion four. So if you did the math on the leverage and all that, you needed about 500 million of equity. So you were starting to sort of outgrow the PE world if you use your rough rules of thumb you'd say somebody needed $5 billion. You know, there weren't that many $5 billion funds if you said how many $5 billion are there that want to buy an industrial business you had even less. But as I like to say, you don't need a lot. You just need two to get yourself a decent price. Once again, we didn't really get strategic interest. We got a few sniff around, but nowhere near the price. There was an interesting common denominator about them. And we got this from United Technologies and a couple others. They would come in.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think I was in the mindset that I could do this for a long period of time. This clearly had legs to it. I liked it. I could see where it was going. You know, it was accumulating significant net worth here doing it. And I liked it. I liked the people and I liked the job. And I was too young not to have a job.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“We almost never lose anyone that we don't want to lose once they get in the equity plan. That's not to say we don't lose people, but we lose them because they can't perform, because they can't function in this kind of environment. But I can't think of a situation where we lost someone and we didn't want to lose once we got him in the equity plan.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Their annual bonus is based on that, but that's not real big. Their overall option investing is the company, the overall company performance. We like that for a couple of reasons. I have played around with the sort of the phantom stock, different operating units, and we've done that once or twice. It gets complicated. We tend to train people and move them through our succession program and move them between units. And that gets even more complicated. You got to try and figure out how to keep them whole and what they gave up on the growth of the other one. So we tied it to the company. It also, I think, promotes an esprit decor, stops a lot of the infighting, you know, who did well and who did poorly were all tied to the same kite here. You get some interesting dynamics. We have these product line reviews that we do quarterly, and we ask most of the operating universe to come. They also tend to self-select.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Business unit think of them like a portfolio company in a PE world because you could clip the wire most of them and sell them the next day. We pay what we call the leadership team. We pay the president, head of sales and marketing, head of operations, head of finance, and possibly the head of engineering. Though sometimes we combine that with, we'd like to combine that with the sales and marketing guy when we can, but those are who gets on the option plan.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Much different situation. Exactly why since we call ourselves a private equity firm in the public market, why is it different?”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“With my argument, we now have PE partners on the board, Rob, Mike Graf, and David Barr. I was telling them, what are you guys getting consistently year in, year out on your IR? I may be wrong, but I'm thinking it's not 20%.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Performance based and the management, the senior management, and the operating unit presidents, which are like portfolio presidents in a PE, we pay below the market, say we pay twenty five to thirty-five percentile in cash pay. But if you take the value of your equity over any four or five year period, you're probably at three, four times what someone else makes doing a comparable job. As the company got bigger, we dropped that from 20% to 17.5%.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“To grow 10% before you vest anything. And in the beginning, 20% before you fully invest and radibly in between. And that runs for a five-year period, and then we re-up it. That's how we started it. And it's worked quite well. It was a little hard to explain the public shareholders, but frankly, once they got it, the ones to put the time into it really like it.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source
“Equity value, you divide it by the number of shares, including the dilutions from the vested options, and you have a new intrinsic dollar per share. That has to grow 10% before you invest anything.”
2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source