In an effort to enhance its position as a major business development company, Ares Capital Corporation ARCC successfully completed the acquisition of American Capital, Ltd. The cash and stock deal was announced in May 2016.
Kipp deVeer, CEO of Ares Capital said, “We are excited to close the acquisition of American Capital, which we expect will be accretive to core earnings and provide many financial and strategic benefits to our shareholders as we further enhance our scale and market position.”
He added, “While significant progress was made with the American Capital portfolio after the merger agreement was signed, we expect a continued repositioning of its legacy investments to enhance earnings at the combined company and further improve our company’s outlook.”
Notably, Ares Capital’s shares have gained 13% in the last one year, outperforming the 10.9% gain for the Zacks categorized Small Business Investment Companies & Commercial industry.
Terms of the Deal
Per the agreement, shareholders of American Capital will receive cash of approximately $18.06 per share, which includes $14.41 from Ares Capital, $2.45 from the sale of American Capital Mortgage Management, LLC, and around $1.20 from Ares Capital Management LLC, the investment adviser of Ares Capital.
In addition, shareholders of American Capital have been given approximately 112 million shares of Ares Capital. As a result, American Capital’s shareholders own 26.3% of the combined company, whereas shareholders of Ares Capital own 73.7%.
Moreover, in order to support the profitability of the resulting company, Ares Capital Management has decided to waive up to $100 million in income-based fees from Ares Capital for 10 calendar quarters starting from second-quarter 2017.
The acquisition has helped Ares Capital further diversify its investment portfolio. Also, as American Capital holds a substantial cash position without any debt burden, the combined company’s debt-to-equity ratio has been moderately reduced.
Penni Roll, CFO of Ares Capital said, “The significant amount of cash held by American Capital and the resulting reduction in leverage from the transaction puts us in a strong capital position as we look to drive long-term earnings growth from the American Capital acquisition."
Wells Fargo Securities, LLC, a division of Wells Fargo & Company WFC and Bank of America Merrill Lynch provided financial advice to Ares Capital for the transaction. Goldman Sachs & Co., a division of The Goldman Sachs Group, Inc. GS and Credit Suisse Securities LLC, a division of Credit Suisse Group AG CS served as financial advisors to American Capital.
Currently, Ares Capital carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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