Garda to buy Aeroguard for $16 million

The transaction, which was completed through a Garda subsidiary, is comprised of $12 million cash at closing, an additional 250,000 shares and $1 million of sales payable within 18 months. The transaction values the Garda shares at $12 even though they are trading publicly at a lower price.

In August, Aeroguard signed a five-year contract with the Canadian Air Transport Security Authority to provide screening services at 15 airports in the Prairies and Northwest Territories.

Through the contract, Aeroguard will be responsible for screening at the region’s three biggest airports in Calgary, Winnipeg and Edmonton starting on Nov. 1.

It marks Garda World’s second security acquisition this year following the February purchase of Kolossal Security for $6.95 million.

After years of acquisitions, Garda World has focused on reducing its debt since the 2007 purchase of U.S. cash logistics firm ATI Systems International for $463 million.

The Aeroguard contract is estimated to be worth $84 million in annual revenues or $421 million over five years, and can be extended to 2022, making it worth twice as much.

Garda World said its knowledge in the Prairies region will benefit the acquisition and the 1,200 Aeroguard employees.

“Our experience in the most important airports of Canada, including Calgary and Edmonton, the two largest in the Prairies region, gives us a unique in-depth knowledge of the operations,” said Chantal Baril, vice president of aviation security solutions.

But the Montreal-based company has faced labour strife since its contract was renewed at Pearson International Airport. Earlier this month, Garda suspended 74 of its screening officers at the country’s busiest airport after they staged a work-to-rule campaign.

The company said it also started legal action against them after they refused to honour a Canada Industrial Relations Board injunction and court order prohibiting a work slowdown.

A work-to-rule protest by security screeners led to long lineups and delays at Terminal 1 for two days earlier this month, affecting domestic and U.S. flights.

Garda said it expects the purchase of Aeroguard to be positive to its earnings starting in the fourth quarter, and is boosting its outlook for 2012 to $145 million of operating profit on the back of the acquisition and strong results in August.

Martin Landry of GMP Securities increased his 12-month target price for Garda’s shares by 50 cents to $11.50 following the acquisition. He also raised his earnings forecast for Garda and estimated the transaction would add two cents of EPS in fiscal 2012 and nine cents per share in 2013.

“While investors would rather see Garda World using its cash on hand to reduce its debt, in our view, this acquisition represents a very good deployment of capital,” he wrote in a report. He said the purchase price is inexpensive and estimates Aeroguard could generate between $5 million to $7 million in annual pre-tax operating income (EBITDA). “The logistical issues incurred by Aeroguard in transitioning their operations from B.C. to the Prairies created an opportunity for Garda step-in and take over the contracts with minimal costs,” Landry added.

In August, Garda won the largest contract in its history with a five-year deal estimated at $650 million to provide airport screening at 15 Ontario airports including Pearson.

An extension option raises the potential value to $1.3 billion through 2022. More than 2,000 security screening officers will be employed under this contract.

The Canadian Air Transport Security Authority (CATSA) also awarded G4S Secure Solutions the contract to provide security screening at 20 airports in B.C. and Yukon. Securitas Transport Aviation Security was awarded the contract for 38 airports in Quebec, New Brunswick, Nova Scotia, P.E.I., Newfoundland and Labrador, and Nunavut.

– Ross Marowits