Erickson Air-Crane Inc. (EAC - Snapshot Report) has entered into a stock purchase agreement with Evergreen International Aviation, Inc. (“EIA”) for the purchase of Evergreen Helicopters, Inc. (“EHI”) for $250 million.
The transaction payment comprises of $185 million cash, $17.5 million in unsecured promissory notes issued by Erickson Air-Crane and approximately four million convertible preferred shares of Erickson Air-Crane based on an agreed value of $11.85 per share worth $47.5 million. If Erickson so wants, it can convert these preferred shares into common shares, subject to shareholder approval under NASDAQ marketplace rules. Post-acquisition, the company might look for this option.
Based on certain revenue targets for calendar years 2013, 2014 and 2015, the company would also have to pay a contingent consideration of up to $26.3 million to EIA, either in cash or promissory notes.
The acquisition is expected to close during the second quarter of 2013. However, the completion of the business depends on the company receiving appropriate financing and certain customary closing conditions.
Evergreen Helicopters is a diversified global provider of air transport services for cargo and personnel to government and commercial customers. It is geographically diversified with its presence in North America, the Middle East, Africa, and Asia Pacific. In calendar year 2012, EHI’s unaudited revenue and adjusted EBITDA was $196.0 million and $56.2 million, respectively.
With this transaction, Erickson is adding back its amortization of certain capitalized overhaul costs, resulting in 2012 adjusted EBITDA of $57.2 million versus the reported EBITDA of $44.5 million.
The acquisition of EHI would provide Erickson Air-Crane with an incremental fleet of 64 aircrafts that comprises of both helicopters and fixed-wing airplanes. This diverse fleet serves a wide range of customers which includes significant passenger transport and airlift services for the US military.
In Nov 2012, the company had announced the acquisition of Air Amazonia. With Air Amazonia and EHI, Erickson would generate pro forma 2012 revenues of approximately $430 million and EBITDA margins of 25%. The combined business would operate a diverse fleet of 100 aircrafts. These acquisitions would bring in synergies and significant opportunities for incremental growth in the near as well as the long term. Moreover, the combination of these three businesses would diversify end markets, regions serviced, mission capabilities and aircraft types.
In 2012, the company had also completed the purchase of Sun Bird Aircraft and associated spare parts inventory and accessories from SDG&E, a subsidiary of Sempra Energy (SRE - Analyst Report). The Sun Bird is an Erickson model S-64F Aircrane that was originally purchased by SDG&E from Erickson Air-Crane in 2009. This transaction will allow the company to take advantage of market opportunities in 2013 and beyond in the oil-and-gas and power line construction sectors of the business in South America and elsewhere.
As far as liquidity is concerned, the company is well positioned to go ahead with these deals. Erickson Air-Crane ended full year 2012 with cash and cash equivalents of approximately $1.47 million, compared with $0.268 million at the end of full year 2011. Long-term debt fell to $26.7 million at the end of full year 2012 from $124.0 million at the end of full year 2011.
However, going forward, the expected cutbacks in the U.S. defense budgets and political uncertainty remain a matter of concern for Erickson Air-Crane. The company presently retains a Zacks Rank #3 (Hold).
Other stocks worth considering are The Boeing Company (BA - Analyst Report) and Lockheed Martin Corporation (LMT - Analyst Report), both with a Zacks Rank #2 (Buy).