By Daniel Lanyon on Monday 19 December 2016
BDC consolidation continues apace in the US as pioneer American Capital is swallowed by Ares.
Shareholders in American Capital have overwhelmingly approved the firm’s acquisition by Ares Capital Corporation through a series of transactions, according to regulatory documents.
American Capital is one of the oldest Business Development Companies (BDCs) in the US, and was also one of the hardest hit by the financial crisis. Its stock price fell from nearly $50 in 2007 to $0.59 before bottoming out in 2009 as a bull market for BDCs quickly saw them become very, very out of favour.
While the stock price is nowhere near that level today, it has ground out significant returns as non-bankk lenders in the mid-market space have rallied, but its price is still a third of its pre-crash levels.
American Capital Share Price performance since launch
Ares Capital, leading specialty finance BDC provides debt and some equity financing solutions to U.S. middle market companies, venture capital backed businesses and power generation projects.
It originates and invests in senior secured loans, mezzanine debt and, to a lesser extent, equity investments through its national direct origination platform. Its investment objective is to generate both current income and capital appreciation through debt and equity investments primarily in private companies.
Now, shareholders at both firms have approved the merger of American Capital and Ares Capital as well as approving an advisory vote on the making of certain payments to American Capital's executive officers in connection with the merger transactions and the re-election of each of the members of American Capital's board of directors.
Holders of over 96 per cent of the American Capital shares that voted on the merger transactions cast their votes in favour of the takeover by Ares, representing approximately 55 per cent of American Capital's outstanding common stock.
Ares is the largest BDC in the US and has a strong track record of growth, and several commentators have forecasted this merger will help it add extra clout at a time many are also expecting volatility.