Loar's $250M Harper Buy Continues M&A Reliance Amid Premium Valuation Concerns

What happened

Loar Holdings has completed the acquisition of Harper Engineering Company for $250 million in cash, marking another step in its aggressive aerospace and defense components roll-up strategy. This deal follows recent acquisitions like LMB and Beadlight, reinforcing management's heavy dependence on M&A to drive growth, as highlighted in the DeepValue report. The cash consideration likely draws from Loar's credit facilities or existing liquidity, potentially increasing leverage or utilizing its $275 million delayed draw term loan, which raises balance-sheet scrutiny amid already high goodwill and intangibles. Despite reported adjusted EBITDA margins near 39%, the company trades at demanding multiples of 104x trailing EPS and 55x EV/EBITDA, making this acquisition a critical test of accretive returns without earnings dilution. Market sentiment, already showing early stress signals like valuation fatigue, will now closely watch for integration success and its impact on 2026 guidance, which implies only ~11% organic growth excluding acquisitions.

Implication

For investors, the Harper deal reinforces Loar's M&A-dependent growth model but does not address core concerns about decelerating organic growth and high acquisition costs embedded in its valuation. The $250 million cash outlay may strain liquidity or increase debt, potentially impacting financial flexibility and interest coverage, especially if funded through credit lines. Integration of Harper will test management's ability to execute on larger deals, with any missteps likely to trigger sharp multiple compression given the stock's crowded ownership and valuation sensitivity. While acquisitions can boost short-term revenue, they add to already elevated goodwill and intangibles, raising the risk of future impairments if targets are missed, as seen in the DeepValue report's bear case. Investors should await guidance updates for Harper's contribution and any revisions to 2026 growth or margin targets, as cuts could validate the 'POTENTIAL SELL' rating and drive the share price toward the $55 attractive entry level.

Thesis delta

The Harper acquisition does not shift the core thesis that Loar is overvalued and overly reliant on acquisitions for growth, but it heightens execution risks and balance-sheet pressures. If Harper integrates smoothly and contributes to earnings without raising leverage, it could temporarily support the growth narrative, but any stumble would likely accelerate the valuation compression warned in the DeepValue report. Investors must now weigh the increased M&A cadence against already thin GAAP margins and decelerating organic guidance, keeping the risk-reward skewed negatively until price or fundamentals reset.