Allied Capital, a Washington-based business development company and Ares Capital, a finance company that provides integrated debt and equity financing solutions, have entered into a definitive agreement under which Ares Capital will acquire Allied Capital in an all stock transaction approximately valued at $648m.
Allied Capital said that following the transaction, Ares Capital stockholders will own approximately 65% of the combined company and Allied Capital stockholders will own approximately 35%. The combined company will remain externally managed by Ares Capital Management, an affiliate of Ares Management and will remain headquartered in New York. Bennett Rosenthal, Michael Arougheti and Richard Davis will remain in their current roles as Ares Capital’s chairman, president and chief financial officer, respectively.
Ares Capital expects the transaction to be accretive to both its net asset value and its core earnings per share in the first year. At closing, Ares Capital expects the combined company’s debt to equity ratio to be in a range of 0.65x to 0.75x.
According to the Allied Capital, the combined company had a pro forma investment portfolio at fair value of $4.5 billion as of June 30th, 2009. Ares Capital believes that a balance sheet of this size will allow the combined company to commit greater amounts of capital in a single transaction, which should drive higher fee income and greater control over portfolio composition. The acquisition is also expected to strengthen Ares Capital’s middle-market asset management platform, Ivy Hill Asset Management. The acquisition will result in a platform with approximately $5.6 billion in committed capital under management and investments in a number of portfolio companies.
Additionally, in a separate transaction, Ares Capital has reached an agreement to acquire Allied Capital’s interests in its Senior Secured Loan Fund (SL Fund) for $165m in cash. With approximately $3.6 billion of committed capital. The SL Fund currently holds unitranche loans totaling approximately $900m. Upon closing, Ares Capital and its SL Fund partner expect to utilize the SL Fund to make new commitments to future unitranche transactions.
Michael Arougheti, president of Ares Capital, said: “We believe this transaction presents an extraordinary opportunity for value creation for both Ares Capital and Allied Capital stockholders. This transformative transaction creates a middle-market capital provider with leading market coverage, access to capital, scale and diversification. We believe that our portfolio composition and prudent balance sheet management throughout the current cycle have positioned us to deliver value for our stockholders and to be an industry consolidator.”
John Scheurer, chief executive officer of Allied Capital, said: “We are excited to have entered into this mutually beneficial combination with Ares Capital. Our stockholders should benefit through resumed receipt of dividends and ownership in a company with a stronger balance sheet and proven access to the capital markets. Through this transaction we expect to create a stronger company that is well positioned for future growth in a market which presents tremendous investment opportunities.”
However, the consummation of the acquisition is subject to stockholders approval, customary regulatory approvals and other closing conditions. The transaction is expected to close by the end of the first quarter of 2010.
