Photo: Billie Grace Ward, Wikimedia Commons, CC0. Image resized.
Ares Capital Corporation, the largest publicly traded business development company in the United States, agreed Tuesday to buy MidCap Financial Investment Corporation in a stock-and-cash deal that values the target at about $2.6 billion, including debt.
The companies said in a joint announcement that MidCap Financial stockholders will receive about $10.88 per share. That is roughly $1.21 in cash, paid by a subsidiary of Ares Management, and about $9.67 in Ares Capital stock. The price is a 30.1% premium to MidCap’s closing price on Oct. 26 and 25.8% above its 30-day volume-weighted average price. MidCap estimated its net asset value, the per-share value of its holdings, at about $12.86 as of Sept. 30, so the offer is below that figure.
What these companies do
Business development companies, known as BDCs, are publicly traded funds that lend to mid-sized private companies, usually those too small for the bond market. They earn interest on the loans and pay most of their income to shareholders as dividends. Ares Capital and MidCap Financial are both externally managed, meaning outside firms run them for a fee: Ares Capital by a unit of Ares Management, and MidCap Financial by an affiliate of Apollo Global Management. The deal therefore moves a fund from Apollo’s platform to Ares’s.
Terms and what changes
Before closing, MidCap expects to pay a special dividend of its undistributed taxable income, and the amount of Ares Capital stock its holders receive will be reduced dollar for dollar to account for it. MidCap holders could also share in 50% of any premium of Ares Capital’s share price over its net asset value, up to a cap. Ares Capital may issue up to about 41 million new shares. After closing, existing Ares Capital stockholders would own about 95% of the combined company and MidCap holders about 5%.
The combined company would hold more than 800 portfolio companies and over $31 billion of investments at fair value as of Sept. 30, the companies said. Ares Capital said the deal is expected to be modestly accretive to its core earnings per share, which supports its dividend. Wells Fargo has agreed to provide $750 million of additional secured financing.
Both boards approved the transaction unanimously. Apollo affiliates, which own 5.2% of MidCap, signed agreements to support the deal. It is expected to close in the first half of 2027, subject to a MidCap stockholder vote and regulatory approvals. Ares Capital’s board and management are expected to stay in place.
The deal arrives as private credit funds, which lend outside traditional banks, keep consolidating. Larger funds can spread costs and risk across more borrowers, while smaller ones often trade below the value of their loans.
JBizNews Desk | New York
© JBizNews.com. All rights reserved. Unauthorized reproduction or redistribution is strictly prohibited.
