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Bristow Group (BRS) announced on Tuesday that it will acquire Cougar Helicopters, currently owned by VIH Aviation Group, in a deal valuing the firm at $250 million. Shareholders of Bristow are enthusiastic, sending shares up 2.3%.

The Deal

Bristow Group announced that it will acquire Cougar Helicopters, the largest offshore energy and search and rescue helicopter service provider in Canada. Cougar's operations are focused on the offshore oil and gas industry of Canada's Atlantic coast.

Bristow will pay $250 million for the unit, with an additional three year earn out of $40 million, depending upon performance targets. The acquisition includes eight Sikorsky S-92 helicopters and passenger, maintenance and SAR facilities at different locations.

CEO William Chiles commented on the deal, "This investment represents an excellent opportunity for Bristow to gain exposure to an attractive, dynamic and growing Canadian exploration and production market. We view Cougar as an exceptional operator, as we have previously worked successfully together and are culturally and operationally aligned with shares core values of safety, quality and service."

Cougar currently employs 250 workers, which support their customers operations at the Canadian Atlantic coast. Cougar reported annual revenues of Canadian $124 million for its fiscal 2011. It expects to grow the business significantly over time. The deal values the operations at two times annual revenues.

Bristow expects to close the deal in the fourth quarter of 2012. The deal is subject to regulatory approval and the completion of a one-year loan facility. Once completed, Bristow leases the aircraft back to Cougar. The firm anticipates that the deal will be at least 7% accretive to annual earnings per share and cash flows.

Valuation

Bristow Group ended its first quarter of its fiscal 2013 with $227 million in cash and equivalents. The company operates with $736 million in short and long term debt, for a net debt position of roughly $509 million.

For the full year of its fiscal 2012, Bristow generated revenues of $1.34 billion. The company net earned $63.5 million, or $1.73 per diluted share. For the full year of its fiscal 2013, the company expects to earn $3.25-$3.55 per share, excluding the impact from Cougar Helicopters.

Valued at $1.7 billion, the market values the firm at roughly 1.3 times annual revenues and 14 times annual earnings.

Currently, Bristow Group pays a quarterly dividend of $0.20, for an annual dividend yield of 1.7%.

Investment Thesis

Year to date, shares of Bristow Group trade roughly flat. Shares moved between $45-$50 in the first half of 2012, and fell to lows of $40 in the early months of the summer. Shares recovered in recent weeks, and investors applaud the deal with shares of Bristow trading hands at around $48.

Over the past five years, shares have returned a mere 10%. Shares traded at $55 in 2008, but fell to lows of $20 in the beginning of 2009. Revenues grew from $1.13 billion in 2009, to $1.34 billion in 2012. Diluted earnings per share of $3.57 in 2009, are expected to come in roughly unchanged in 2013. The midpoint guidance of $3.40, plus the 7% positive impact from Cougar, will boost annual earnings to around $3.65 per share in 2013.

The acquisition of Cougar will add roughly $125 million in annual revenues to around $1.5 billion on a pro-forma basis. Although the acquisition is relatively pricey on a revenue multiple, investors applaud the accretive effects of the deal. The deal makes sense on a long term basis. Long term investors should applaud the deal, and stay with their investments.

Source: Bristow Group - Acquisition Of Cougar Helicopters Makes Long-Term Strategic Sense