Ares Capital's Buyout of Apollo's MidCap Could Spark Wave of BDC Mergers — Barrons.com

What happened

Ares Capital agreed to buy MidCap Financial Investment, which is run by an affiliate of Apollo Global Management, for $2.6 billion including debt. Ares is paying $10.88 a share, mostly in Ares stock, a 30% premium to MidCap's $8.37 closing price on Monday.

Confirmed

Global impact / market context

The deal values a business development company, or BDC, which invests in private credit, at a premium while many peers trade near a 35% discount to net asset value, meaning the value of their underlying investments minus liabilities. That gap could push other managers toward mergers or take-private sales.

Analyst inference

BDC prices fell this year on worry about credit in leveraged loan portfolios, though managers say declines exceed any actual credit problems. The premium purchase supports that argument and may encourage consolidation among BDCs, most of which have market values under $1 billion.

Analyst inference

What to watch

1. Ares is paying $10.88 a share for MidCap, mostly in Ares stock, a 30% premium to MidCap's $8.37 close on Monday, with the total price at $2.6 billion including debt. Confirmed
2. Watch whether other BDCs pursue mergers or take-private deals, since the article says the Ares purchase could usher in greater consolidation in a sector where most BDCs are under $1 billion in market value. Proposed
3. Watch whether the median BDC's roughly 35% discount to net asset value narrows, as the premium deal may reassure investors about credit quality in leveraged loan portfolios. Analyst inference

Evidence

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