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Welcome back Explorer!
In this tenth edition of my Deep Dive Briefs series, I’m continuing my research journey on serial acquirers—this time exploring:
Last Month, I published two Deep Dive Briefs on Topicus (the first of CSU’s spin-offs), and Lumine Group (the second CSU spin-off). If you haven’t had a chance to read them yet, here are the links:
🔗 Hidden Gem Deep Dive Brief: Lumine
🔗 Hidden Gem Deep Dive Brief: Topicus
In this edition, we’ll dive into one of those rare companies with a durable, strong reinforcing moat, a long growth runaway, with some of the best owner-operators at the helm.
Topics I’ll Cover
🔹 Company Overview
🔹 History, Leadership & Culture
🔹 Core Offerings & Business Model
🔹 Economic Moat
🔹 Growth Drivers
🔹 Capital Allocation Strategy
🔹 Risks & Challenges
🔹 Valuation Model - Quick mental framework and DCF model to estimate intrinsic value and shareholders returns
🔹 Final Thoughts – My stance on HEICO as a long-term investment
I hope you enjoy it, let’s dive in!
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Company Overview: Niche Conglomerate
Heico Corporation is a niche juggernaut specializing in the aerospace and defense components for the commercial aerospace aftermarket.
Founded in 1957 and transformed by the Mendelson family in 1990, Heico’s model has all the looks of a mini-Berkshire:
Lean corporate HQ and autonomous subsidiaries
Disciplined M&A
An obsession with free cash flow
The company operates through two core business segments:
Flight Support Group (FSG): ~70% of revenue — develops and sells FAA-approved Parts Manufacturer Approval (PMA) components, primarily for the aerospace aftermarket.
Electronic Technologies Group (ETG): ~30% of revenue — manufactures niche high-reliability electronic components used in defense, space, and medical devices.
The company's core playbook?
Finding complex, low-volume, non-commoditized components that are mission-critical with long lifespans, reverse-engineer them at lower cost, pass 🔗 FAA certification, and deliver them at a 30–50% discount to Original Equipment Manufacturers (OEMs) — all without compromising safety and with a value proposition airlines and governments increasingly appreciate.
Today, HEICO stands as a global operator with a highly decentralized structure, the undisputed leader in the PMA space, and a portfolio of over 100 subsidiaries.
Its dual-class share structure ($HEI, $HEI.A) has allowed the Mendelson family to maintain long-term strategic control with greater voting rights and without short-term shareholder pressure, while still providing public investors access to one of the most consistent mid-cap compounders in the industrial sector.
🧐 Fun Fact: The HEI vs. HEI.A Price Gap
As of June 2025, there’s a notable 21.6% discount between HEICO’s two share classes:
HEICO (HEI): Full voting rights (1 vote per share)
HEICO A (HEI.A): Limited voting rights (1/10th vote per share)
The official reason? Voting rights. HEI shares offer more control over the company, which theoretically justifies a premium.
But here’s the thing:
A 21.6% premium for just extra voting rights—when the Mendelson family effectively controls the company anyway—seems excessive.
The economic rights (dividends, ownership) are the same for both classes. So, unless you’re an activist investor or looking for control (which is essentially impossible here), it’s hard to argue that HEI shares are worth 20%+ more.
Bottom line:
For long-term investors focused on economic return—not control—HEI.A shares offer better value. And historically, this price gap has tended to revert somewhat over time, occasionally offering an arbitrage-lite opportunity.
History & Evolution: From Struggling Lab Equipment to Aerospace Conglomerate
Heico was founded in 1957 as Heinicke Instruments, originally focused on laboratory equipment. Its transformation began in 1974 with the acquisition of Jet Avion, a manufacturer specializing in jet engine components, marking Heico’s first step into the aerospace sector.
A key moment arrived in the 1980s, following a commercial airline accident that revealed design flaws in jet engine combustors—one of the engine’s most critical and sensitive parts. With OEMs unable to meet the sudden replacement demand, the FAA and major airlines turned, for the first time, to a PMA supplier: Heico. The company reverse-engineered the combustor components, and their quality passed every test. The trust earned during this period became a cornerstone of Heico’s reputation.
But the company’s true inflection point came in 1990, when the Mendelson family—led by Larry Mendelson and his sons Eric and Victor—acquired a stake in the struggling lab equipment firm. Through a leveraged buyout, they gained control, quickly divested the legacy business, and began transforming Heico into the aerospace powerhouse it is today.
Recognizing a regulatory gap, the Mendelson family saw a unique opportunity in the aftermarket for aircraft components—an industry then dominated by OEMs known for high prices and slow delivery times. Their insight was simple: if Heico could successfully reverse-engineer and certify a complex combustor, why not expand that capability across a broader range of components?
Over the next three decades, Heico built a portfolio of FAA-approved PMA parts and executed more than 100 acquisitions—primarily founder-led, cash-generative businesses in niche markets. This strategy has compounded into over 20,000 FAA-approved components, with 500+ new approvals annually, and an estimated 50% share of the global PMA market.
From its first $2m bolt-on deal to its $2B biggest acquisition of former competitor Wencor in 2023, Heico’s M&A strategy has remained intact: acquire durable businesses at reasonable multiples, retain their culture and leadership, and empower them to grow under Heico’s decentralized umbrella.
What began in the 1980s and ’90s as a niche aftermarket parts supplier has evolved into a diversified aerospace and defense components ecosystem, built on regulatory trust, an impeccable safety record, and world-class capital allocation under the stewardship of the Mendelson family.
Leadership & Culture: The Mendelson Dynasty
Heico is a family affair and proud of it.
Larry Mendelson (Chairman/CEO): Led since 1990. Deeply hands-on. Corporate culture reflects his low-ego, long-term style.
Victor Mendelson (ETG Co-President): Oversees high-tech defense units. Long tenure and technical savvy.
Eric Mendelson (FSG Co-President): Architect of Heico’s PMA dominance.
Together, they’ve grown Heico from a $25M market cap in 1990 to a $37B aerospace powerhouse, or a whooping +147 900% total return.
Culturally, Heico is a rare breed, representing capitalism at its best:
Long-term focus: Key to Heico’s brand is customer trust, not pricing power. The Mendelsons favor margin restraint in exchange for loyalty.
Decentralization with discipline: Roughly 80% of acquired subsidiaries are still led by their original founders. Heico’s headquarters remains intentionally lean, centralizing capital allocation but leaving execution to local operators—minimizing bureaucracy and empowering autonomy.
Reputation for fairness: Price increases are modest (low-single digits), while Heico maintains industry-best turn times and inventory availability, even for lower-volume parts.
Acquirer of choice: Many founders come directly to Heico when they consider selling—drawn not just by valuation, but by the company’s track record of respecting legacy and people
And above all, their values are simple and powerful:
Underpromise, overdeliver.
Leave money on the table if it earns trust.
Bet on people, not spreadsheets.
As Larry Mendelson puts it:
“We could charge more… but we don’t. We leave money on the table in the short term to build something permanent.”
Core Offerings & Business Model
Heico operates via two segments:
Flight Support Group (FSG) – 68% of revenue
Designs, manufactures, and sells PMA parts for the aftermarket of aircraft engines and airframes
Offers MRO (maintenance, repair, overhaul) services
Distributes both PMA and OEM parts for airlines and lessors
Acquired Wencor (2023), the #2 PMA player, doubling the scale of the PMA business
Business Dynamics:
OEMs usually sell original components/parts at a loss to secure future maintenance revenue.
Heico reverse-engineers those parts and sells at a 30–50% discount, with FAA approval. This aircraft aftermarket business is a space known for its relatively high margins and long equipment lives. On top of that, Heico offers MRO services providing recurring revenue streams.
PMA parts support aircraft aged 10–25 years, a sweet spot where OEM pricing is punitive, and reliability trumps brand loyalty.
Today, Heico has 19 of the top 20 airlines globally as customers.
Electronic Technologies Group (ETG) – 32% of revenue
Supplies custom-engineered niche electronic and electro-optical components for high-reliability applications. Products include laser range finders, sensors, power systems, RF modules often integrated into complex systems (satellites, missiles, targeting equipment).
Customers span defense primes, commercial space, and medical device makers. Some clients include NASA, Raytheon, Lockheed Martin, SpaceX, and Medtronic.
Acquisition-driven segment with the majority of ETG's businesses run autonomously by the original owners.
Competitive Edge
ETG provides mission-critical, low-cost components with small volume but high strategic importance.
PMA approval process can take years. Therefore, competitors are unlikely to match Heico’s throughput.
FAA has granted Heico “Organizational Design Authorization” (ODA), allowing internal self-certification of parts — a rare privilege.
Airlines and defense customers prize reliability: Heico has never had a flight safety bulletin on any part sold.
Common Threads Across Both Segments
Unmatched scale
Trust with the FAA
Deep customer trust
Zero-failure tolerance
On-time part availability
High regulatory/technical barrier to entry
A very fragmented supplier base ripe for opportunistic ‘roll-up’ acquisitions
Economic Moat
As already hinted at in the previous section, Heico’s competitive advantage is built around:
Intangible Assets: Deep know-how in reverse engineering and FAA regulatory navigation.
Regulatory Approval Process (FAA PMA): Takes years to develop, test, and certify a part. Most players can’t afford the investment or the wait.
Switching Costs: Airlines and defense primes are deeply risk averse, they don't swap critical parts providers lightly. Once a PMA part is qualified, they rarely revisit the supplier list.
Distribution Reach: Direct-to-airline relationships and in-house logistics
R&D, Safety and Trust: It takes years of perfect performance to earn the FAA's and customers' trust — something no competitor has yet matched at scale.
Organizational Designation Authorization (ODA): A rare FAA privilege allowing Heico to self-certify parts which allows them to significantly accelerate time-to-market.
Safety Record: Over 85 million parts shipped with zero safety bulletins. This is nearly impossible to replicate.
The PMA portfolio is also highly diversified — no single part or customer dominates, which helps insulate earnings.