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Los Angeles Business Journal :: August 31, 2009
Excerpt from Investments & Finance Section/Wall Street West

Aerospace Sector Soars With Deal for Parts Maker

In a move that injected life into both the stagnant L.A. aerospace industry and the struggling mergers and acquisitions market, a local aircraft engine parts supplier was acquired last week in a nine-figure deal.

Portland, Ore.-based Precision Castparts Corp. announced Aug. 26 the $850 million acquisition of Carlton Forge Works, a privately held Paramount supplier to the aerospace industry for the better part of the past century.

The deal, the largest in Los Angeles in months, is expected to close later this year. Kerlin Capital Group LLC, a boutique investment bank in downtown Los Angeles, represented Carlton in the all-cash deal.

Founded in 1929, Carlton makes seamless rolled rings used in aircraft engines and gas turbines. The company, which has both its headquarters and manufacturing facility in Paramount, employs some 400 people.

It is unknown how the acquisition will affect the company’s local operations, but sources close to the deal indicate that Carlton is likely to stay in the area. Company executives could not be reached for comment.

Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., said that Precision could use the company’s location to better penetrate the local aerospace industry, which supplies major military and commercial aircraft makers.

“If Precision wants to be a stronger player in aerospace, then Southern California is the place to be,” Kyser said. “The work Carlton does is pretty specialized, so that may safeguard them.”

Indeed, Precision, which manufactures cast metal parts for use in a variety of industries, released a statement suggesting it intended to maintain if not expand Carlton’s operations after the strategic acquisition.

Carlton significantly broadens our forging capabilities, and, with our combined strengths, we can attack markets that we haven’t been able to penetrate individually,” said Mark Donegan, chairman and chief executive of Precision, in the statement. “In addition, with seven other Precision manufacturing operations in Southern California, we will be able to leverage our growing economies of scale in that region.”

Aside from the possible impact on the manufacturing industry, the merger itself is a promising sign for the local M&A market, which has been languishing during the recession.

In July, just 26 deals were announced in Los Angeles County, the lowest total in the four years that the Business Journal has tracked local M&A activity. At $850 million, the Carlton deal is the largest transaction since late May, when New Brunswick, N.J.-based Johnson & Johnson agreed to buy L.A. drug maker Cougar Biotechnology Inc. for $970 million.

After the announcement, Precision shares gained 9.5 percent to close at $94.97 on Aug. 27.

— FRANCISCO VARA-ORTA