Private Equity Is Still Flying

This morning, oil platform-oriented services firm CHC Helicopter (NYSE: FLI  ) announced that it has agreed to a $1.5 billion buyout from First Reserve.

If you're not familiar with First Reserve, it is the name in energy-related private equity. The firm has invested in and/or done business with everyone from rig operator Pride International (NYSE: PDE  ) to Nabors Industries (NYSE: NBR  ) to Superior Energy Services (NYSE: SPN  ) . In short, this shop knows energy services cold.

First Reserve is paying about a 50% premium for the helicopter hulk, which looks expensive based on trailing earnings. Then again, earnings don't mean a whole lot to a private equity buyer. It's all about the cash flows, and CHC, with its significant order book of new choppers, ought to be tossing out cash like Helicopter Ben. A quick look at the backlog of tasteless Transocean (NYSE: RIG  ) ought to convince you just how strong the offshore oil and gas market is going to be for years to come.

There are a few lessons here. First, as noted, just because a company's P/E ratio is high doesn't mean it's not cheap in the eyes of a control buyer. Second, for all our paranoia about the private equity bubble going "pop," there is still cash out there looking to make sound deals. The dumb money may be dead, but I expect that smart money like First Reserve will be salivating if stocks continue to swoon.