Key Takeaways
- • Ares Capital Corporation has agreed to acquire MidCap Financial Investment Corporation (MFIC), the listed BDC externally managed by an Apollo Global Management affiliate, in a stock-and-cash transaction valued at about $2.6 billion in total enterprise value, approved unanimously by both boards.
- • MFIC stockholders are expected to receive $10.88 per fully diluted share: about $1.21 in cash from a subsidiary of Ares Management and about $9.67 in Ares Capital stock, a 30.1% premium to MFIC's October 26 close and 25.8% to its 30-day VWAP.
- • The consideration remains below MFIC's preliminary NAV estimate of about $12.86 per share as of September 30, so the deal is a premium to a discounted share price rather than to book value.
- • Ares Capital expects the combination to be modestly accretive to core earnings, lifting its pro forma portfolio to more than 800 companies and over $31 billion of investments at fair value, with existing Ares Capital holders owning about 95% of the combined company before the special dividend adjustment.
- • Closing is expected in the first half of 2027, subject to MFIC stockholder and regulatory approvals.
Summary
Ares Capital Corporation, the largest publicly traded business development company, has agreed to acquire MidCap Financial Investment Corporation, the listed BDC externally managed by an affiliate of Apollo Global Management, in a stock-and-cash transaction valued at a total enterprise value of about $2.6 billion, according to HedgeCo.Net. The boards of both companies approved the merger unanimously, with MFIC's board acting on the recommendation of a special committee of independent directors.
MFIC stockholders are expected to receive total consideration of $10.88 per fully diluted share, consisting of about $1.21 in cash provided by a subsidiary of Ares Management and about $9.67 in Ares Capital stock. The price represents a premium of roughly 30.1% to MFIC's October 26 close and about 25.8% to its 30-day volume-weighted average price. It remains below MFIC's preliminary net asset value estimate of about $12.86 per share as of September 30, a gap that frames the transaction as a premium to a discounted share price rather than a premium to book.
The structure includes several mechanics. Before closing, MFIC expects to pay a special dividend of its undistributed taxable income, and the Ares Capital stock component will be reduced dollar for dollar to reflect it. The exchange ratio uses the greater of Ares Capital's NAV per share and its share price, and MFIC holders share in half of any premium of Ares Capital's stock above NAV up to 104.5% of NAV. Apollo affiliates holding 5.2% of MFIC signed voting and support agreements, and Wells Fargo agreed to provide $750 million of additional secured financing.
Ares Capital said the combination should be modestly accretive to core earnings and would lift its pro forma portfolio to more than 800 companies and over $31 billion of investments at fair value. MFIC adds more than 200 incumbent positions and widens Ares Capital's sponsor relationships to more than 600. Closing is expected in the first half of 2027, subject to MFIC stockholder and regulatory approvals.
The transaction is another example of scale becoming the primary response to listed BDCs trading below asset value. Ares Capital has previously grown through acquisitions of Allied Capital and American Capital, and Apollo said it will continue building its middle-market lending franchise through the MidCap Financial platform. Market participants will be watching whether other sub-scale BDCs trading at discounts are consolidated in similar fashion, and how the special dividend and NAV-linked exchange ratio ultimately determine MFIC's final value.
MFIC stockholders are expected to receive total consideration of $10.88 per fully diluted share, consisting of about $1.21 in cash provided by a subsidiary of Ares Management and about $9.67 in Ares Capital stock. The price represents a premium of roughly 30.1% to MFIC's October 26 close and about 25.8% to its 30-day volume-weighted average price. It remains below MFIC's preliminary net asset value estimate of about $12.86 per share as of September 30, a gap that frames the transaction as a premium to a discounted share price rather than a premium to book.
The structure includes several mechanics. Before closing, MFIC expects to pay a special dividend of its undistributed taxable income, and the Ares Capital stock component will be reduced dollar for dollar to reflect it. The exchange ratio uses the greater of Ares Capital's NAV per share and its share price, and MFIC holders share in half of any premium of Ares Capital's stock above NAV up to 104.5% of NAV. Apollo affiliates holding 5.2% of MFIC signed voting and support agreements, and Wells Fargo agreed to provide $750 million of additional secured financing.
Ares Capital said the combination should be modestly accretive to core earnings and would lift its pro forma portfolio to more than 800 companies and over $31 billion of investments at fair value. MFIC adds more than 200 incumbent positions and widens Ares Capital's sponsor relationships to more than 600. Closing is expected in the first half of 2027, subject to MFIC stockholder and regulatory approvals.
The transaction is another example of scale becoming the primary response to listed BDCs trading below asset value. Ares Capital has previously grown through acquisitions of Allied Capital and American Capital, and Apollo said it will continue building its middle-market lending franchise through the MidCap Financial platform. Market participants will be watching whether other sub-scale BDCs trading at discounts are consolidated in similar fashion, and how the special dividend and NAV-linked exchange ratio ultimately determine MFIC's final value.
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