50X

This is our final episode in a series of four on TransDigm. In this discussion, we contrast TransDigm with traditional private equity portfolio companies, examine the company’s approach to capital allocation, and dissect Berkshire’s and Stockbridge’s position management over time. Our guest is Rob Small, a Managing Director at Berkshire Partners and Stockbridge, as well as a Director at TransDigm. Under Rob’s direction, Stockbridge has maintained a concentrated position in TransDigm and demonstrated remarkable conviction to add (and occasionally trim) at opportune times. 

For the full show notes, transcript, and links to mentioned content, check out the episode page here.

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This episode is brought to you by Tegus. The team at Tegus has built a full company intelligence platform aimed at streamlining the investment research process. In preparation for the 50X series, we actively used Tegus to gain qualitative insights beyond traditional reported data. To learn more and enjoy a free trial, visit tegus.co/50x. 

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50X is a podcast that dissects the anatomy of extraordinary long-term investments. The show is hosted by Will Thorndike and the team at Compounding Labs, and brought to you in partnership with Colossus.

In each episode of 50X, we look in detail at an investment that has appreciated at least 50-fold. From the seat of the professional investor and occasionally the CEO, we explore its origins, evolution, and eventual outcome, studying key themes around long-term value creation ranging from operations, capital allocation, and culture to pivotal buy and sell decisions. To enhance the quality and depth of our interviews, we rigorously study each asset in advance, diving into all available public and private resources.

Learn more and dive into our research at 50xpodcast.com

Follow us on Twitter: @50Xpodcast and @joincolossus

Show Notes

[00:00:00] – 50X Introduction

[00:02:04] – Sponsorship: Tegus

[00:07:18] – [First Question] - Management Team

[00:10:05] – Culture, Decentralization, & Compensation

[00:19:04] – Evaluating Nick Howley as CEO

[00:21:57] – Rob’s Service on the Board of Directors

[00:27:47] – Approach to Capital Allocation

[00:31:29] – Returning Capital to Shareholders

[00:33:53] – Operating under Private vs. Public Ownership

[00:36:41] – Sale Decisions for Private vs. Public Equity

[00:40:41] – Stockbridge’s Major Buy/Sell Decisions

[00:48:46] – TransDigm’s Influence on Rob’s Investment Philosophy

[00:53:39] – Examining Stockbridge’s Approach to Selling

[00:58:14] – TransDigm’s Future

This is our third episode in a series of four on TransDigm. In this discussion, we study TransDigm’s evolution while under public ownership. Since 2006, the company has outperformed the S&P by 15-fold and its peer group by 9-fold. We unpack its approach to special dividends and leverage, examine meaningful acquisitions alongside disruptive crises, reflect on the prior three decades, and consider TransDigm’s future beyond $50 billion of Enterprise Value. Our guest is Nick Howley, the Founder and Executive Chairman of TransDigm.

For the full show notes, transcript, and links to mentioned content, check out the episode page here.

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This episode is brought to you by Tegus. The team at Tegus has built a full company intelligence platform aimed at streamlining the investment research process. In preparation for the 50X series, we actively used Tegus to gain qualitative insights beyond traditional reported data. To learn more and enjoy a free trial, visit tegus.co/50x. 

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50X is a podcast that dissects the anatomy of extraordinary long-term investments. The show is hosted by Will Thorndike and the team at Compounding Labs, and brought to you in partnership with Colossus.

In each episode of 50X, we look in detail at an investment that has appreciated at least 50-fold. From the seat of the professional investor and occasionally the CEO, we explore its origins, evolution, and eventual outcome, studying key themes around long-term value creation ranging from operations, capital allocation, and culture to pivotal buy and sell decisions. To enhance the quality and depth of our interviews, we rigorously study each asset in advance, diving into all available public and private resources.

Learn more and dive into our research at 50xpodcast.com

Follow us on Twitter: @50Xpodcast and @joincolossus

Show Notes

[00:00:00] – 50X Introduction

[00:01:56] – Sponsorship: Tegus

[00:05:58] – CEO Time Allocation Post-IPO

[00:09:08] – Attracting Long-Term Shareholders

[00:10:00] – Evolution of Board Post-IPO

[00:11:06] – Approach to Leverage and Protecting Downside

[00:15:16] – Navigating the Great Financial Crisis

[00:18:43] – Approach to Special Dividends

[00:22:04] – Stock Repurchases as Alternative

[00:23:00] – Kirkhill Acquisition

[00:27:00] – Esterline Acquisition for $4 Billion

[00:33:17] – Investing in Product, Quality, and Innovation

[00:34:40] – Remaining M&A Runway

[00:36:32] – Short Seller Assault in 2017

[00:42:26] – Navigating COVID-19

[00:46:59] – Approach to Managing through Crises

[00:47:50] – Nick’s Transition from CEO to Chairman

[00:56:30] – Managing Personal Liquidity

[00:59:23] – The Howley Foundation

[01:02:57] – Snapshot of TransDigm Today

[01:05:11] – Lightening Round

[01:10:18] – TransDigm’s Influence on Nick’s Life and Investment Philosophy

This is our second episode in a series of four on TransDigm, an aerospace components manufacturer that has returned over 1,750X since its inception nearly three decades earlier. If you haven’t listened to the first episode with TransDigm’s founder Nick Howley, we recommend starting there.

Today, we are joined by Rob Small. Rob is a Managing Director at Berkshire Partners and has led Stockbridge, Berkshire’s public equities business, since its inception in 2007. Rob conducted diligence on TransDigm in its 2003 auction before investing personally following the IPO, building an anchor position with Stockbridge in 2007, and joining the Board of Directors in 2010. 

In this discussion, we cover the core elements composing TransDigm’s business quality, Berkshire’s and Stockbridge’s initial investments, and the trajectory of Rob’s conviction.

For the full show notes, transcript, and links to mentioned content, check out the episode page here.

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This episode is brought to you by Tegus. The team at Tegus has built a full company intelligence platform aimed at streamlining the investment research process. In preparation for the 50X series, we actively used Tegus to gain qualitative insights beyond traditional reported data. To learn more and enjoy a free trial, visit tegus.co/50x. 

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50X is a podcast that dissects the anatomy of extraordinary long-term investments. The show is hosted by Will Thorndike and the team at Compounding Labs, and brought to you in partnership with Colossus.

In each episode of 50X, we look in detail at an investment that has appreciated at least 50-fold. From the seat of the professional investor and occasionally the CEO, we explore its origins, evolution, and eventual outcome, studying key themes around long-term value creation ranging from operations, capital allocation, and culture to pivotal buy and sell decisions. To enhance the quality and depth of our interviews, we rigorously study each asset in advance, diving into all available public and private resources.

Learn more and dive into our research at 50xpodcast.com

Follow us on Twitter: @50Xpodcast and @joincolossus

Show Notes

[00:00:00] – 50X Introduction

[00:01:51] – Sponsorship: Tegus

[00:07:19] – Introduction to the Episode and Rob Small

[00:08:57] – Berkshire Partners’ Initial Exposure to TransDigm

[00:10:57] – Auction in 2003 by Odyssey Investment Partners

[00:14:35] – Contrast TransDigm with Hexcel

[00:15:55] – Re-engaging with TransDigm post-IPO

[00:18:33] – Origins of Stockbridge

[00:24:53] – Core Elements of TransDigm’s Business Quality

[00:29:52] – Investment Trajectory for Stockbridge and Berkshire Partners

[00:33:31] – Rob’s Appointment to TransDigm’s Board of Directors

[00:36:42] – Rob’s Trajectory of Conviction

[00:42:59] – Translating Conviction to Position Size

[00:43:50] – Persistent Undervaluation: Acquisition Pace and Exit Multiples

Today's episode is the first in a series of four on TransDigm, an aerospace components manufacturer that has appreciated over 1,750X since its inception nearly three decades earlier. In today’s episode we are joined by Nick Howley, TransDigm’s founder, long-time CEO and Executive Chairman. We explore TransDigm’s foundations under private ownership, digging into its core value drivers, decentralized culture, differentiated compensation program, and early M&A motion.

For the full show notes, transcript, and links to mentioned content, check out the episode page here.

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This episode is brought to you by Tegus. The team at Tegus has built a full company intelligence platform aimed at streamlining the investment research process. In preparation for the 50X series, we actively used Tegus to gain qualitative insights beyond traditional reported data. To learn more and enjoy a free trial, visit tegus.co/50x. 

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50X is a podcast that dissects the anatomy of extraordinary long-term investments. The show is hosted by Will Thorndike and the team at Compounding Labs, and brought to you in partnership with Colossus.

In each episode of 50X, we look in detail at an investment that has appreciated at least 50-fold. From the seat of the professional investor and occasionally the CEO, we explore its origins, evolution, and eventual outcome, studying key themes around long-term value creation ranging from operations, capital allocation, and culture to pivotal buy and sell decisions. To enhance the quality and depth of our interviews, we rigorously study each asset in advance, diving into all available public and private resources.

Learn more and dive into our research at 50xpodcast.com

Follow us on Twitter: @50Xpodcast and @joincolossus

Show Notes

[00:00:00] – 50X Introduction 

[00:01:48] – Sponsorship: Tegus

[00:06:52] – Introduction to Nick and TransDigm

[00:08:50] – Nick’s Background pre-TransDigm

[00:11:56] – Original Acquisition from Imo Industries in 1993

[00:15:33] – Thesis and Performance under Kelso & Co.’s Ownership

[00:18:42] – Genesis of Three Key Value Drivers: Price, Productivity, and New Business

[00:21:07] – Building the Management Team

[00:24:05] – Early Lessons on Value Drivers

[00:27:53] – Capital Allocation under Kelso & Co.

[00:28:51] – Sale to Odyssey Investment Partners in 1998

[00:30:26] – Strategy under Odyssey’s Ownership

[00:31:51] – Early Acquisitions and Integration Playbook

[00:37:26] – Early External Crises

[00:41:13] – Snapshot at Conclusion of Odyssey’s Ownership in 2003

[00:43:19] – Building a Decentralized Culture  

[00:46:23] – Differentiated Approach to Compensation

[00:52:12] – Sale to Warburg Pincus in 2003

[00:55:51] – Shift to Inorganic Growth under Warburg’s Ownership

[00:58:08] – Evolution of M&A Process

[01:05:37] – Post-Acquisition Expectations and Post-Mortem Process

[01:09:48] – Divesting Acquired Assets to Maintain Focus

[01:11:29] – Embedding Value-Generative Culture via Hiring and Training

[01:13:54] – Quarterly Product Line Reviews

[01:20:31] – Recap of Private Investment Returns and Snapshot pre-IPO

Welcome to 50X. Hosted by Will Thorndike, author of The Outsiders and a co-founder at Compounding Labs, 50X aims to dissect the anatomy of investments that have appreciated at least 50-fold. We track the often circuitous route to exceptional long-term returns, exploring the foundations of value creation and how that rarest of investment commodities—conviction—is created, maintained, threatened, and sometimes lost. Learn more at 50Xpodcast.com.