The Heico Playbook

Treat employees as owners. Then make it literal.

The family business

In 1990, Larry Mendelson and his sons Eric and Victor took control of Heico, a struggling aerospace components company with $26 million in revenue. Thirty-five years later, it’s a $4 billion business. A hundred thousand dollars invested when the Mendelsons arrived is now worth over $100 million.

The strategy sounds almost naively simple: buy niche aerospace businesses, keep the founders running them, focus on cash flow, never sell.

What makes it work is harder to copy than it sounds.

The 80/20 structure

When Heico acquires a business, they typically buy 80% and let the seller keep 20%. The seller stays on, running the business they built — not as a transition period, but as the permanent structure.

Skin in the game runs deeper than retention. Sellers with skin in the game don’t optimise for a clean exit. They optimise for the next twenty years. And because Heico almost never sells its businesses — only two disposals in thirty-five years — that 20% stake compounds alongside everything else.

This positioning is deliberate. As the Mendelsons put it: “We believe HEICO’s post-acquisition operating philosophy of respecting and leaving intact a business’ team renders us the best buyer of businesses from owners who want a great home for their company.”

Being the best buyer means you see deals others don’t. Owners who care about legacy approach Heico before running a process. The best businesses often never hit the market.

Extreme decentralisation

Heico runs eighty-plus independent business units with 2-3% corporate overhead. The headquarters doesn’t dictate. Victor Mendelson: “We let our businesses operate locally. We’re not trying to run them from here. They know how to deal with their environments and governments.”

This is a deliberate bet that local operators know their markets better than any central function could. Heico doesn’t need to find “best-in-class operators” because they acquire businesses that are already the best in their fields, run by the people who made them that way.

The discipline required is harder than it looks. Most acquirers can’t resist the urge to “add value” through integration, shared services, and standardised processes. Heico’s value-add is staying out of the way.

The ownership culture

Early in the Mendelson era, Heico put 10% of the company’s stock into the employee 401(k) plan as a gift. Those shares are now worth over $2 billion.

Eric Mendelson: “Today, when long-serving people retire from HEICO, they retire with seven- and eight-digit 401(k) account balances.”

The logic was alignment, not philanthropy. Employees who own meaningful stakes think like owners. They protect margins, watch costs, and care about decisions that won’t pay off for years. The 401(k) gift turned “treat employees as owners” from a slogan into an economic reality.

Four hundred employees now own more than $8 million each in Heico stock through their retirement accounts. That’s the kind of wealth creation that compounds loyalty across generations.

Cash flow, not revenue

Larry Mendelson was emphatic about what mattered: “We don’t target the top line of sales revenue. We can do a trillion dollars in sales and make no money. We are focused on the bottom line and particularly cash flow. It’s the power of compounding that has made us.”

He was equally clear on why cash flow beats earnings per share: “You can’t grow a company just with earnings per share; you need cash. Many companies have capex expenditures where earnings per share is one thing, but the cash flow from earnings per share is considerably less.”

This focus shapes everything — which businesses to buy, how to run them, what to measure. Heico targets niche companies with strong profits and cash flow, in protected markets with high barriers to entry. The compounding engine runs on cash, not accounting profits.

The anti-TransDigm

Heico operates in the same industry as TransDigm — aerospace aftermarket parts — but runs the opposite playbook. TransDigm is famous for aggressive pricing on proprietary parts. Heico competes on value, offering parts at 30-50% below OEM prices while maintaining an impeccable safety record: 86 million parts shipped, zero in-flight shutdowns, zero service bulletins.

Culture runs the same contrast. TransDigm is centralised and financially engineered. Heico is decentralised and family-run. Both have compounded extraordinarily, but they’ve built very different organisations.

Heico’s approach attracts a specific type of acquisition target — owner-operators who care about how their business will be run after they sell. That self-selection compounds over time.

Shared sacrifice

When COVID hit aerospace in 2020, Heico’s response revealed the culture in action. While competitors announced mass layoffs, the Mendelsons took a different approach: “Given that our Team Members are HEICO’s most important facet, we are not following the mass-layoff practices adopted by many other companies.”

Instead, they asked corporate staff to take temporary pay reductions. The three Mendelsons, the CFO, the Senior EVP, and General Counsel all took 20% salary cuts. Every board member reduced their compensation by the same percentage.

The message was clear: sacrifice gets shared, and downturns don’t get balanced on the backs of the workforce. That’s easy to say when times are good — following through when revenue collapses is what makes it real.

What compounds

Larry Mendelson passed away in September 2025. The business he and his sons built continues under Eric and Victor’s leadership, running the same playbook.

The durability isn’t accidental. Heico’s advantages compound in ways that are hard to replicate: a reputation as the best buyer attracts better deals; retained founders bring relationships and knowledge that can’t be hired; employee ownership creates alignment that survives leadership transitions; decades of local autonomy build capabilities that centralised competitors can’t match.

The formula looks simple: buy good businesses, keep the people, focus on cash, stay decentralised, share the wealth. The execution requires saying no to every instinct that drives most acquirers — the urge to integrate, standardise, optimise, and extract.

That restraint, maintained for thirty-five years across a hundred acquisitions, is what made the Mendelsons’ hundred-thousand-dollar stake worth over a hundred million.

Connects to Library: Scale Economies Shared · Tacit Knowledge · Skin in the Game

See also: The Halma Discipline — Another 30-year case study in patient, disciplined capital allocation.