Loar Holdings Expands Aerospace Footprint with Harper Engineering

Loar Holdings Inc. (NYSE: LOAR), a diversified aerospace and defense components manufacturer, announced the acquisition of Harper Engineering Company on January 27, 2025, marking another strategic expansion of its platform into critical aerospace subsystems. The deal adds a manufacturer of precision actuators and electromagnetic systems to Loar's portfolio of mission-critical suppliers serving commercial, business, and military aviation markets.

Financial terms were not disclosed, though industry sources familiar with Harper's operations suggest annual revenues in the $50-70 million range, positioning this as a tuck-in acquisition typical of Loar's buy-and-build strategy since its 2021 formation under the sponsorship of Berkshire Partners.

The Harper Engineering acquisition extends Loar's capabilities in aerospace actuation systems—mechanical and electromechanical devices that control critical aircraft functions including flight control surfaces, landing gear, cargo doors, and engine components. These systems represent high-value, low-volume products with significant aftermarket content, aligning perfectly with Loar's focus on proprietary, sole-source components that generate recurring revenue streams.

"Harper Engineering's expertise in precision actuation and electromagnetic systems strengthens our position as a critical supplier to leading aerospace OEMs and tier-one integrators," said Dirkson Charles, CEO of Loar Holdings, in the official announcement. "Their 70-year legacy of engineering excellence and established customer relationships across commercial and defense platforms create immediate value for our shareholders."

Harper, founded in 1955 and headquartered in Charlotte, North Carolina, has developed proprietary technologies in rotary and linear actuators, solenoids, and electromagnetic clutches and brakes. The company's customer base includes major aerospace primes such as Boeing, Lockheed Martin, and Northrop Grumman, as well as tier-one suppliers like Collins Aerospace and Safran.

Harper Engineering operates in a specialized niche of the aerospace components market characterized by high technical barriers, lengthy qualification cycles, and significant switching costs. Once a supplier's components are designed into an aircraft platform, replacement becomes prohibitively expensive and time-consuming, creating durable competitive moats.

The company's product portfolio addresses several critical applications:

Industry analysts estimate that aerospace actuation systems represent a $4.8 billion global market growing at approximately 5.2% annually through 2030, driven by commercial aircraft production ramp-ups, military modernization programs, and expanding aftermarket services. Harper's established positions on legacy platforms—combined with design wins on next-generation aircraft—position the company to capture disproportionate share of this growth.

Particularly attractive to acquirers like Loar is Harper's aftermarket exposure. Aerospace actuators typically require replacement or overhaul every 10,000-15,000 flight hours, creating predictable demand streams over aircraft lifetimes that can span 30-40 years. Industry data suggests aftermarket revenues carry gross margins 15-20 percentage points higher than original equipment sales, with minimal incremental engineering investment required.

For Harper specifically, aftermarket services and spare parts likely represent 35-45% of total revenue—a mix that should improve as aircraft delivered over the past decade enter their first major maintenance cycles.

The Harper acquisition represents Loar's eighth platform addition since its formation in 2021, when Berkshire Partners assembled an initial portfolio of aerospace component manufacturers through a series of rapid-fire acquisitions. The strategy mirrors successful aerospace consolidators like TransDigm Group and HEICO Corporation—both of which have generated exceptional returns through disciplined M&A of niche, sole-source suppliers.

Loar went public in April 2024 at $23 per share, raising approximately $350 million in proceeds intended primarily for acquisitions. The stock currently trades around $94, representing more than 300% appreciation and validating investor appetite for aerospace consolidation strategies even in a volatile broader market.

Loar's M&A approach focuses on several consistent criteria, all of which Harper appears to satisfy:

**Proprietary Technology**: Targets must offer differentiated products with limited direct substitutes, ideally protected by patents or accumulated engineering know-how. Harper's seven decades of actuator development have produced proprietary designs difficult to reverse-engineer or replicate.

**Aftermarket Content**: Ideal acquisitions generate 30%+ of revenue from aftermarket parts and services, creating revenue visibility and margin expansion opportunities. Harper's installed base across hundreds of aircraft platforms ensures decades of recurring demand.

**Defense Exposure**: While not exclusively focused on defense, Loar values suppliers with meaningful exposure to military programs, which offer longer production runs and reduced cyclicality compared to commercial aviation. Harper serves multiple defense platforms including the F-35, CH-53K, and various unmanned systems.

**Operational Improvement Potential**: Berkshire Partners brings significant operational expertise through its Berkshire Operating Advisors network, targeting companies where procurement optimization, manufacturing efficiency, and commercial excellence can drive margin expansion. Family-owned businesses like Harper often present substantial low-hanging fruit in these areas.

The Harper-Loar transaction unfolds against a backdrop of continued robust M&A activity in aerospace and defense components, even as broader M&A markets have cooled from 2021-2022 peaks. Several factors sustain deal flow in this sector:

**Commercial Aviation Recovery**: Global passenger traffic has recovered to 98% of 2019 levels according to IATA, driving aircraft deliveries and aftermarket activity. Boeing and Airbus both face record backlogs exceeding 14,000 aircraft combined, ensuring strong production visibility for the next 8-10 years.

**Defense Modernization Budgets**: Geopolitical tensions and peer-competitor concerns have driven sustained increases in defense spending across NATO countries and Asia-Pacific allies. The U.S. defense budget alone includes $315 billion for procurement and R&D in fiscal 2025, much of it directed toward aircraft modernization and new platforms.

**Generational Transitions**: Many aerospace component suppliers were founded in the 1950s-1970s golden age of aviation expansion and remain family-owned. As founders and second-generation owners reach retirement, liquidity events accelerate—creating deal flow for well-capitalized consolidators.

**Valuation Arbitrage**: Public aerospace consolidators trade at 15-20x EBITDA multiples, while privately-held component suppliers typically transact at 8-12x EBITDA. This gap creates powerful incentives for platforms like Loar to acquire private companies, integrate them efficiently, and have the combined entity valued at public-market multiples—generating immediate value creation.

Loar competes for acquisition targets with several established players, most notably TransDigm Group (NYSE: TDG), which pioneered the aerospace components roll-up strategy and has generated compound annual returns exceeding 20% for two decades. TransDigm's $75 billion market capitalization and systematic approach to pricing power and aftermarket penetration set the standard for the industry.

Similarly, HEICO Corporation (NYSE: HEI) has built a $30 billion enterprise through acquisitions of niche aerospace suppliers, particularly in the aftermarket parts segment where it offers FAA-approved alternatives to OEM components at 30-50% discounts.

Newer entrants include Kaman Corporation's aerospace division, which has similarly pivoted toward a consolidation strategy, and several private equity-backed platforms still in formation stage. The competition for quality assets has intensified, compressing acquisition multiples and requiring acquirers to demonstrate clear value-creation strategies beyond financial engineering.

Based on Loar's historical integration playbook and public comments, several value-creation initiatives likely await Harper Engineering over the next 18-24 months:

**Procurement Leverage**: Loar's scale across multiple operating units creates opportunities to consolidate supplier relationships and negotiate volume discounts on common inputs—raw materials like aerospace-grade aluminum and titanium, electronic components, and manufacturing consumables. Previous acquisitions have realized 2-4% cost-of-goods-sold improvements through procurement optimization alone.

**Commercial Excellence**: Many family-owned aerospace suppliers underinvest in pricing analytics and commercial infrastructure. Loar typically implements value-based pricing frameworks, annual escalation clauses tied to aerospace-specific indices, and systematic aftermarket penetration programs. These initiatives can expand gross margins by 300-500 basis points over 2-3 years.

**Operational Efficiency**: Manufacturing optimization—including lean production methods, improved throughput, and reduced cycle times—represents another margin expansion vector. Loar often introduces continuous improvement methodologies and invests in automation where labor content is high and volumes justify capital deployment.

**Cross-Selling Opportunities**: With Harper now part of a broader platform, opportunities emerge to introduce its products to customers of sister companies and vice versa. A customer buying landing gear actuators might also need fasteners, sensors, or other components already available within the Loar portfolio.

Despite the strategic logic, integration challenges persist. Aerospace suppliers depend heavily on deep engineering relationships and institutional knowledge often concentrated in long-tenured employees. Key person risk—the potential departure of critical engineers or customer-facing personnel—tops the concern list in these transactions.

Additionally, aggressive cost reduction or operational changes can jeopardize quality certifications (AS9100, NADCAP) essential to aerospace manufacturing. Any quality incident or delivery failure can damage customer relationships built over decades and prove difficult to repair in an industry where reliability supersedes nearly all other considerations.

Loar has generally demonstrated discipline in these areas, maintaining operational independence for acquired businesses while slowly introducing corporate best practices. The company's decentralized structure—preserving brand identities and local management—mitigates some integration risks while potentially limiting synergy capture.

While Loar did not disclose purchase price or expected returns, comparable transactions in the aerospace components space have recently closed at 10-13x EBITDA for companies with Harper's profile. Assuming Harper generates approximately $12-15 million in EBITDA (implying 20-25% margins typical for this product category), the transaction likely valued the company at $120-195 million.

If Loar can expand margins by 400 basis points through operational improvements and grow revenue at mid-single-digit rates over three years, Harper's EBITDA could reach $20-22 million by 2028. At Loar's current public-market multiple of approximately 18-20x EBITDA, that would imply an asset value of $360-440 million—representing a potential 2.5-3.0x return on invested capital before accounting for debt paydown or interim cash generation.

These returns depend critically on execution, particularly margin expansion, which requires careful navigation of aerospace quality requirements and customer expectations. Over-optimization can prove counterproductive if it compromises delivery performance or product reliability.

Beyond the specific transaction, the Harper-Loar deal reflects broader trends reshaping the aerospace and defense industrial base. Consolidation at the tier-two and tier-three supplier levels concentrates market power, potentially reducing supply chain resilience but improving financial performance for remaining participants.

Some industry observers and defense officials have expressed concern that excessive consolidation could leave critical defense programs dependent on sole-source suppliers with limited redundancy—creating vulnerability to disruptions and reducing competitive pressure on pricing. The Defense Department has initiated several programs to map and strengthen defense supply chains, particularly for components with single suppliers.

Conversely, consolidators argue that scale enables critical investments in modernization, engineering talent, and quality systems that small, subscale suppliers cannot afford. A 2023 study by the Aerospace Industries Association found that component suppliers with revenue below $100 million struggled to maintain necessary quality certifications and invest in next-generation manufacturing technologies—suggesting some consolidation may prove necessary for industry health.

The debate will intensify as platforms like Loar continue scaling. At some threshold, regulatory scrutiny—particularly from the Federal Trade Commission or defense industrial base oversight bodies—may constrain further acquisitions in concentrated market segments.

The Harper acquisition positions Loar to continue its aggressive growth trajectory. The company has signaled intentions to complete 3-5 acquisitions annually, funded by free cash flow generation, debt capacity, and potentially additional equity issuance given the current stock price premium.

Near-term priorities likely include further geographic expansion (particularly into European suppliers), deeper penetration of defense electronics and avionics (adjacencies to current portfolios), and potentially larger acquisitions in the $200-400 million range as the platform matures and integration capabilities strengthen.

For Harper specifically, the next 12-18 months will prove critical as integration unfolds and the first post-acquisition financial results emerge. Success here—demonstrated through margin expansion and maintained customer relationships—will validate the investment thesis and provide templates for future deals. Stumbles could force reevaluation of integration approaches and acquisition pacing.

More broadly, aerospace M&A shows no signs of slowing. Record aircraft backlogs, defense modernization imperatives, and ongoing generational transitions ensure robust deal flow for the foreseeable future. The companies that execute most effectively—balancing growth, integration, and operational excellence—stand to generate exceptional returns in an industry characterized by durable competitive moats and secular tailwinds.

The full announcement is available on Loar Holdings' investor relations site.