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Nick Howley

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2022-07-14

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2022-07-14

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1. “Which makes it just a little tougher to figure out. So we ended up with a lot of thought and hand wringing with a concept that ties itself to what I'll call generation of intrinsic value. What we do is you take the EBITDA at the start of the period, whatever that period is, and the multiple at the start of that period. And you can calculate a total enterprise value, take off the debt, and that gives you a equity value, divide by the number of shares, and you got a dollar per share. As we move forward each year, we hold the multiple constant because we don't want the management either getting a windfall or not getting their options vested because of swings in the public perception. So we hold it constant. So the next year you take EBITDA from the next year, you multiply it times the multiple, you subtract the then debt, which is where you capture all the cash generation.”

   2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

2. “Would say during our time in the private ownership, I don't think the compensation system was particularly unique. Compensation looked like BE compensation. My experience is, and now I have a lot of experience in other PE ones, is they almost all look the same. The amount of equity differs depending on the size of the deal and the sophistication of the management, but typically the vesting methodology and that sort of stuff are usually pretty similar. Our question was, how can you do that? How can you mirror that in the public world? Because I don't know of any public companies that do that. At least I couldn't find any then, and I haven't been able to find that now. So we were looking to try and mirror that. We wanted to underpay people in cash compensation. We wanted to over-acquitize them, but we wanted to pay them when they generate intrinsic value. But in the public world, there isn't a terminal.”

   2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

3. “Got to get rid of people fast that don't fit everyone says they want to be autonomous and run a decentralized business. Fact of the matter is what they really mean is they want to be responsible and things are going well but not responsible and things are. I'm president of the good stuff. No, no, you're president of all the stuff. You got to be quick to fire when somebody doesn't fit in culturally. Somebody's trying, they get the culture. They're trying their best. They're in a bump in the road or they need some training, but they're smart enough, energetic enough. Those people you should live with for a while. But if somebody fundamentally doesn't buy into it or they're a politician or they're not truthful, you got to get them out quick.”

   2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

4. “I would say one of the things that helped me get comfortable with it is that we were lucky attracting this core of eight or ten relatively young guys that were believers and we trusted so they ultimately became the seeds for the first acquisitions we were making and as we got bigger they became the executive vice presidents which is sort of the culture carrier as we buy things you have to be one you have to believe it because you have to pass up at times apparent cost savings on the belief that the loss of entrepreneurial spirit and ownership will more than overcome what you might save by having common account receivable department or something like that or a common sales force you just have to believe that you'll do a lot better if you lived it for a while and had a deal in a corporate environment where it just stifled people like that and the other thing you got to do is you”

   2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

5. “Crank out programs that the local operating management doesn't believe in, so they don't do them. They just fill the forms out and pass them back. And we thought the more that we could cut out of that, the better. And we'd have a much better chance of attracting the.”

   2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

6. “Would say that decentralization was almost a religious belief by Doug and I. We both felt very strongly that if you want people to act like owners, you have to treat them like owners and pay them like owners and give them a fair amount of autonomy. That was just a very strong belief the two of us had. We had also had experience in different large organizations and my experience in Doug's and by the way this has been nothing but reinforced and subsequent acquisitions I've made is that corporate structure and the corporate staff in the main contribute very little if any value, at least to niche engineering business is what I know. I mean there's some functions that need to be performed. You got to pay taxes and you got to borrow money but most of the others are value detractors. They generate non-value added work.”

   2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

7. “The Cleveland business, how to move the offices, they outgrew the manufacturing facilities. They had to move to an office about two blocks away. We moved to the same thing.”

   2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

8. “It was Doug and I still had enough businesses that I didn't have a day job running business. I was more in full time harassment mode of different people. We replaced the CFO at the beginning of the Odyssey turn, which was a significant upgrade. You stuck with this for a number of years, Greg Rufus. So I think it was Doug myself, a CFO, another accountant to help with consolidation. And we had two administrators. So maybe it was seven people at this point”

   2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

9. “I would guess the leverage was probably running four to six times when it's sold. I don't remember where it was in that cycle. Probably went up to six or a little higher when we bought Champion. It drifted down, but 9-11 kind of threw a little monkey wrench in it for a year or so, so I just can't remember it. What rate it drifted now?”

   2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

10. “I would say Champion was probably 15 or 20 million when we bought it. And I would guess it was 16 when we sold it the next time.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

11. “Not a lot. Our cash comp was never a big deal. It was always the equity and the options. And to some degree, they self-regulated. The EPITA went down their value went down. We may have missed a year or two investing. I don't remember. I don't remember whether we did, whatever it is, it all caught up.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Would say we went through this same drill as we did before. We had a different set of players now with more operating units, but the same argument, your costs are, your revenue monastery, but that's your cost. We're not going to get into this fixed variable argument. And if the revenue is coming down 20%, someone's taking the cost down 20%. If it's not you, it'll be the next guy. But someone's doing it.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

13. “We reduced down, got the cost down very substantially. We also, interestingly, picked up the new business development in this. We saw a very big opportunity for cockpit security systems. We were the first one to come up with a cockpit security system, which we sold across the whole industry. And it gave us a hop of revenue in a very badly needed time, making the security systems. And we got our cost down quickly. And we saw it through as a practical matter. It didn't last as long as we feared by probably four months, five months afterwards. Air travel was about back up to where it was at the time of the 9-11 event. And we went on from there. But it looked pretty scary at the time.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

14. “And no one knew where the bottom was. That was the scary things this is going to keep going forever. It was pretty clear to us this was a problem and it was interesting because our customers were still trying to get us to ramp up production on things, but we were saying, oh, this makes no sense. As I like to say, something bit in the dinosaur on the ass and it takes them six months to turn around and see you got bit. Once again, we thought no sense going into denial here. And there's really only a few things we can do. We push the cost down as fast as we could. We probably took across the whole company, which we think we were running pretty leanly anyway. We probably took 20% of the cost out and the people out of it. And we just turned the rates down, even though we were still getting squeezed by the customers to keep delivering. We just kept telling them this can't be true. You can't stop producing airplanes. People stop flying and you need these high delivery rates.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

15. “For about 60 days, it just stopped. People just stopped flying all over the world, and it very slowly started to creep back up.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

16. “They held the parts up, and this is what we think is responsible. That turned out to be bullshit, but their goal is not to necessarily be truthful, it's to make shocking statements. A couple things we did on that. We didn't go into denial on it. We quickly ramped up the legal activity. What are we going to do? How are we going to defend ourselves? And we quickly ramped up a bunch of university types to go analyze the situation and come up with reasons this couldn't be true, which we didn't think was true. It took a lot of effort and generated a lot of angst. In fact, we were able to fight it off, but it was an existential kind of threat. So that was our first one. Turned out to not be a big deal, but it was a little scary when it came up. The next one was 9-11. 9-11, the situation there was that we had just bought champion. As I said, we levered up again. We made one of our bigger buys. 9-11 came along in the aerospace industry essentially just stopped. Now in retrospect, it's nowhere near as bad as COVID.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

17. “Let me back up. We had one that happened in 96. There was a plane crash and 60 minutes decided to make us the poster child for killing the 300 people.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

18. “Two things, Will. Some of them are low probability of winning and others are priced so poorly or they've given away already much of the upside frequently in intellectual property or aftermarket rights. You're going to lose even if you win. So if we don't think there's a probability of restructuring the contract such that you can win someday, we just move on. And that's been a winning formally as a practical matter. We have typically increased the rate of arrival on new business after we bought something. And clearly increased the rate of arrival of profitable new businesses.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

19. “Came home on the weekends. It was a big buy. Same drill. We replaced most of the management within 90 days. We brought Bernie Iverson, who ended up being one of the big guys in a transdime in to be ahead of sales and marketing. Bear step up for him. I was the acting president of it. Same drill probably took 20, 25% of the cost out. Substantial adjustment in the prices. This is probably like we did some of it Adam's right. The review of the new business, we were getting better and better at. So we went through and probably knocked out half of the engineering projects. Took out 15 or 20% of the engineering cost and the new business development picked up substantially because we worked on stuff we could win.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

20. “Yes, Champion's interesting story. Champion was a big buy for us at the time as a percent of our enterprise value. And I was a bit nervous about it. We had a lever up again to buy it. We had sort of drifted down a little. We had a lever up some to buy it. I'll tell you something that happened that proved our thesis is we bought it and within about 90 days 9-11 hit. So not only did we lever up, but the market went to hell. I was in South Carolina. We bought it from Federal Mogul. They kept the automotive business. We bought the aerospace business. A significant issue there was, can we keep ourselves free of the bankruptcy? Because it's clear to everyone they're going to go bankrupt. Anyway, we did a lot of work and we managed to convince ourselves that we could keep clear of it. And we did manage to. We did the same thing. I went down and lived. It's right outside of Greenville, South Carolina. It's in Liberty. I went down and lived there for about six months.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

21. “A long term agreement with the OEM. That's a Boeing contract. We took a harder line with them and said, you know, you've been getting fixed prices here for seven or eight years. You're going to have to at least catch up for seven or eight years of inflation. Then we can start to talk about a real price increase. That got a little testy for a while, but ultimately the good guys won. And the aftermarket went way up. That margin probably moved from 12% and I would say within probably 18 months it was 25%. And within three years, it was 40 or 45%. It was the drill. Price, cost out, no business. We ran that over and over again as we bought other things.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

22. “Californian ran it for the first six months. And we started the playbook there. We probably took 20% of the cost out in about a 60 day period, and that's mostly people. You can get costs out of the other things, but they take a while. The quick move is too many people. And not like most places, not people doing nothing, just doing things that didn't matter. They weren't value creative. The other thing is we went in a lot of detail as we did in the acquisition, but we knew it even more. Once we got there, we went through all the products and did a whole slice and dice on the pricing structure. How much was old? What was low quantity? What had any chance of replacing? What had no chance of replacing? And we very substantially increased the prices in the aftermarket. And we also had to deal with two or three big LTAs and we took a harder line on them.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

23. “One we made with Marathon, and that was a little tougher. Frankly, we misjudged the shipset content. We didn't do enough work on it. So it didn't have natural organic growth in retrospective, like many things, two years after I re-owned it, I knew that. But I didn't know it a month before as well as I should have. We got good returns on there, primarily because we frankly had to strip the cost down further and had to hit price harder. And that wasn't a great model. The next one we bought was Adams Wright. Adams Wright was the largest manufacturer in the world of faucets for airplanes. Now, that wasn't a very big company. It was about $5 million of EBITDA on about $40 million of sales, which I now see made no sense, and I didn't think it made any sense then that you should be making that kind of money. That was a meaningful investment for us, $40 million. I went out and I did this for probably the first seven or eight. I went out and lived in a...”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

24. “In a place it worked once. If we stuck with our criteria, which was fairly straightforward, proprietary aerospace businesses with significant aftermarket content, where we could see a clear path to private equity like return, if the business hit the aerospace aftermarket and proprietary, we could run this play over and over again. During that, it started to become apparent to me.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

25. “First, the honesty guys were good guys to work with, too. They're a little more high strung than the Kelso guys. They're more sort of an old line private equity firm. They were great to work with, but Odyssey guys are more high strung. I like them all. I stayed quite friendly with them through the years. continued this very focused value creation concept because it was just driven deep into the culture but we started to step up and this was at their some of it was there pressing some of it was me but some was there as clearly the acquisition activity and they were very supportive of that very helpful of that and very much encouraging in it i don't remember the exact how many businesses we bought but i would guess on their four or five year hold we maybe bought eight or nine businesses something like that made me feel quite comfortable with our ability to scale and the fact that our thesis worked in other words we didn't just by dumb”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

26. “So essentially, we had to push the thing out for probably six months and then couldn't finance it and had to rejigger it. Price didn't change much, but Kelso had to roll some more over, which ended up being very good thing for them, but it's not what they wanted at the time.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

27. “I would joke with Kelso, I'd say I'm horrified. I thought you were my girlfriend forever, and here you are dumping me, you know. I was getting a payday, so actually I was pretty happy to get dumped. So we hired, I think it was Goldman Sachs at the time. And we went through a normal process. We got PE bidders. We got strategic sniffing around it. But this happened really every time. We never really got a serious strategic bidder. The bidders, as I recall, were the three finalists were Oak Hill, Joseph Littlejohn and Levy at the time. They've changed their name a couple times. And Odyssey. And they were right on the price. And also they were decent guys. They did the right thing. They said, see where you're comfortable?”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

28. “We did not make any dividend distributions the first time we just ran the business, paid down the debt, mostly we just paid down the debt. And I would say within about three and a half years, it was pretty clear we were selling here in the next year or so. So that's what we did. I would say I was marginally attentive to it, but not mostly I was running the businesses. And there was plenty of runway there. I mean, I got the idea. I was running the largest business, but I was a practical matter. I was the CFO too, so I was fairly involved when there was money getting raised. They really did much. We borrowed the money to buy it, and then we just paid it down, sold it.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

29. “Your cost. Otherwise, what happens is it just becomes a gaming exercise of what can I call fixed and what can I exclude and what is really not addressable so that we're pretty rough on that. Oh, new business, it's just the detailed tracking. Everybody has to be out all over it, business by business by business. We want to analyze them not just can we get the business and not just what the volume is, but are you ever going to make any money? It's a very common thing we see in acquisitions. Hundreds of engineering projects going on, chewing up all kinds of expenses. You could probably throw half of them out, almost the day you walk in. Either your chance of winning them isn't very good or their price such that if you win them, it isn't worth winning them. So we try and do a pretty good job gating up front on that, but tracking it. And it's a key part of your job is to keep that pipeline full.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

30. “Pick a subset that you can afford to either lose or figure out how you're going to back off if it doesn't work rather than wring your hands before you try it. It generally has been workable. In cost, our goal and cost control has always been, and I say this over and over again, we don't understand fix from variable. We're not going to try and get into that argument. We're just going to say our cost base is your revenue minus your EBITDA. And our goal there is to at least offset inflation every year with savings. Simple way to think about that is if you want to give everybody a 3% raise and your business is flat, you got to take 3% of the people out. Now, you know, when the business grows, you got to do other adjustments for that. But the simple goal is offset inflation. It's easy to do for a year or two. It's very hard to do over time. And the other trick is you have to count all.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

31. “And they almost always underestimate the strength of their franchise in the aftermarket, which means they don't adequately understand the value and the switching cost. So we had to educate people a lot to that. And frankly, we are pretty intense on that. We expect somebody that's running a business of ours, a president, to be intimately involved in the pricing. We don't think that's something he can delegate down. He has to have pretty clear rules that elevate the thing quickly right to the top. We don't want there to be any confusion if we're not getting the price. Who's not getting the price? And we want to clearly understand why we're not getting the price. We have different kinds of techniques to monitor that and watch it and slice and dice the customer base so that we don't fall it up. One of the things we would say over and over again, rather than worry forever about what you're going to try,”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

32. “Again, three value drivers we focus everybody on price, cost, and new business. Now, I'll say again, you obviously have to take care of your existing accounts. They all require same kind of care and feeding. In pricing, our goal was to price the product, not to the cost, but to price it to what we thought the value we provided to the customer, which is a mix of what do you provide and what's the switching cost. Sometimes you can calculate that pretty closely, but frequently it's a little bit of a trial and error to get there. I found in this business, and I subsequently found it in almost every business we bought, that most niche engineered product type of businesses underpriced their product. And in this business, particularly in the aerospace, you're not going to make a lot of money selling to the OEMs, but you don't have to lose money, which a lot of people do.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

33. “Offices were in Cleveland. Both Doug and I moved out to Cleveland. As I said, I moved out first. We both lived outside of Princeton, New Jersey. I mean, essentially, we had all our money in this, and we said we got to be at these businesses. We were both out in Jersey. They were connected to the manufacturing facility. They had some extra space, and we carved it off and called that the corporate office. It didn't matter to me because I was running one of the businesses.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

34. “There wasn't any, essentially. We had four businesses which we quickly collapsed down to two. We had a CFO, which is a practical matter. I did a fair amount of it. But we had a CFO. We have my partner Doug Peacock was the CEO and I was president, but I also ran one of the two businesses. And that was it. And there was an assistant. And we ran that way for probably first five, six years.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

35. “Bernie was probably 31. George Valdez, who's the current COO, was probably 23 or 24. Jim Riley, who was a president EVP for many, many years, though retired, left about six or seven years ago. Jim was probably 26. To some degree, we were lucky. You know, we managed to get guys that were believers early on. I think did a pretty good job. We didn't hit everyone or some. We brought in and didn't work, but I think we did a pretty good job of getting the ones that didn't fit out fast and moving the ones that did up. Will, I suspect you've seen this. By and large, in my view, people overemphasize experience at the expense of a smart, young, and energetic.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

36. “Yeah, I was 40. I would guess Ray was 32. Bob Henderson, who's vice chairman now and has been president and executive vice president of many, many different businesses. We've had through the years Bob was probably 37, Jim Scalina, executive VP of ours and president of many companies and CFO for a period of time. He was probably 33.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

37. “Was pretty lucky there. Interestingly, within about a year of buying the company, we got in most of the people that ended up the senior managers 20, 25 years later. They were all sort of at a common characteristic. They were too young for their job by most people's standards. They hadn't had a job like this before. They bought in and understood the value creation thing, worked hard and they wanted to make money. And if I looked back within a year, Ray Lobenthal, who was the long-term COO, was there.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

38. “Markets. And if you stay focused on them, someone will pay you eventually. The capital structure is important, but all that can really do is amplify the intrinsic value that you create otherwise. And frankly, what I would say, and I say all the time to other people, is that's mine to foul up or not foul up, which you can do is you can create the real intrinsic value. I can just try and multiply it a little bit”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

39. “High quality products to your customers on time and service them, you can't get new business and you can't get the price up. And if you cut the cost down far enough that you can't do that, then you're not going to get the others. So you're forced to strike a balance. And we were able to get that concept through because it's simple. It's a pretty simple thing to explain to people. And it's almost everybody. It became a very powerful message that worked. May it work when we had 350 people and it's worked when we had 20,000 people because it's been a simple thing that we can drive into the culture and teach people. What we would continuously say, and we say, because I believe it, you can't fix the market. It's going to be what it's going to be. You can't fix the valuation multiples, maybe theoretically you can, but as a practical matter, you can't change them a lot. But what you can do is you can work on your value drivers and up and down.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

40. “I was immediately and completely focused on what I'd call equity value creation. It was pretty obvious to me and had been previously that much of what you do in many large organizations has little to do with value creation. The question was, how can you find a simple way to explain that to people and get them all focused around that between Doug and I were able to distill that down to what I think is sort of the essence, the only thing that you can do to change the intrinsic value in one of these businesses? And this is true in most industrial businesses. You can get the price up, you can get the cost down, and you can generate new business. Almost anything else is tertiary at best. I know some things have to be done. What we liked about it, to some degree they are self-regulating. If you don't deliver well engineered”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

41. “And I say will we pretty quickly develop sort of the value driver concept that became our operating mantra for the next 28 years?”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

42. “I want to say, and I'm saying this a little bit for memory, but they bought in at about $9 or $10 million of EBITDA, and they sold the business to Odyssey, who was the next buyer in about $45 million of EBITDA. All organic. In other words, no acquisitions along that period. It was the combination of substantial cost takeout, the market pickup, and frankly, we got the rest of our value drivers developed. We got the value pricing concept moving, which was a big contributor, and we got a pretty good new business development machine moving along too.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

43. “I do that for four or five years, make some money, put enough money in the bank to, I don't know, buy a house to shore and pay for kids' college and have a little left, then go seek fame and fortune elsewhere”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

44. “Right. That's usually stabler than the commercial business, and they rarely cycle together by good or bad luck, they happen to cycle together here. The previous owner had not been very attentive to the cost adjustments and takeouts. Now, you might say, I was partly there too, but maybe I wasn't that anxious to get as shift-shape as possible. But the thesis was primarily get the cost in line, get the thing stabilized, shut down many of the operations. There were too many of them. I think there were seven facilities. I think we shut down four of them, or four or five of them, which was a difficult, detailed job. Step up the management wasn't very impressive. And frankly, a little bit of new business as the market recovered and let the market recover. And what that should do is it should move the margin up because you get a better cost structure as the margin recovers and then sell it. And my thought at the time was.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

45. “commercial business i would say was just a normal cycle i mean that every 10 or 15 years attends to cycle down for one reason or another i don't remember what the precipitating incident was the defense business was what they called many years ago at the time the defense dividend kind of piece was breaking out all over the you know russia was falling apart eastern europe was falling apart and they cut down on defense spending”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

46. “That's right. I would say if you said, what's the thesis for the first turn? The thesis, in my view, is very simple. Thesis item number one is get it closed. Best plan in the world didn't have much chance of working without a business. So that was number one. The business thesis was it was a poor time in the market, both the commercial market and the defense market were down and the businesses were roughly two-thirds, one-third, not that much different than they are now. But it's unusual. They both cycle down at the same time.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

47. “EBITDA was somewhere between 9 and 10 million. The purchase price, and I say 9 or 10, is you have this normal as it last year, look forward or LTM or whatever. Either one got you somewhere in the 9 or 10 range. The price was $55 million. It was about $25 equity and 30 of debt. Maybe there was another million bucks. I'm sure there was a few fees floating around there. I'm forgetting. But that was roughly in the range of it. It was four small businesses and about seven different manufacturing facilities.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

48. “Again, what I did learn is if you're bidding against management, if the management is any competency, it's tough to be a practical buyer. There was another PE buyer and a couple other strategic buyers, but the reality was they weren't going to get there unless they did it themselves, that's for sure. They weren't going to get much help from me. So that's how we got going. And it was tense. I moved out with my wife and we had three small kids. But what money we had in it? And we moved along the bet that we could get it done. My wife stopped her job, which we wasn't going to get back. Research kind of job in horticulture that you'll never replace once you leave, like most like a college kind of job. And it was tense, but it worked and we got it done.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

49. “We managed to find Kelso and get their interest, but it was a marginal size deal. It was going to be a $50, $55 million deal with $25 million or so of equity. We got them interested in the potential. Interestingly enough, or it wasn't for him at the time, the chairman and CEO of the company fired my partner, Doug Peacock, in the middle of the process because he thought he was colluding trying to buy it, which he completely was. And he kept threatening to fire me for the same purpose, but it's tough. Once I'm already engaged with the buyers and they've already said, what a wonderful management team we have. It's tough to fire them, right? In the middle of the process, essentially he would just call me and harangue me all the time about it. You're not talking any of them, are you? I thought it was somewhat naive for a very smart guy otherwise to think he had any sway over me anymore. He'd already decided to overboard me. Why would I care what he said? But it got fairly long.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source

50. “I said, the company decided to sell him. I went out to run them, polish them up, and try and sell it with, as I said again, no intention of selling it. It was a little dicey in that the company said they didn't want to sell the management for obvious reasons. They thought there was too much conflict, which there clearly is too much conflict. But myself and who was then my boss, Doug Peacock, who became my partner, decided we were going to buy it. We put a story together. The company had hired Morgan Stanley to sell it, and we had people introduce us to people that we knew in the private equity business. I knew some of them from school. Frankly, the first one we took it to was Berkshire Partners. I don't know if Rob was even there yet, but it was Brad Bloom. They turned us down. Ultimately, they ended up over a 28-year period probably being the biggest moneymaker other than management on it, but they turned it down the first time and didn't buy it.”

    2022-07-14 · Invest Like the Best · TransDigm: Foundations with Nick Howley [50X, EP.1] · IDENTIFIED FROM THE TRANSCRIPT · source