Ares and Apollo embrace new private-credit alchemy
MFIC•Ares Capital agreed to acquire Apollo-operated MidCap Financial Investment in a $2.6 billion deal including debt, largely paying with its higher-valued shares. The deal could create about $330 million in value by moving loans into Ares Capital’s valuation multiple.
1. A valuation gap
Ares Capital agreed to buy MidCap Financial Investment, operated by Apollo Global Management, in a deal valued at $2.6 billion including debt. MFIC investors will receive $1.21 per share in cash and $9.67 in Ares Capital stock, subject to a cap on the stock issuance.
2. Potential value creation
Before the deal was announced, MFIC traded at about 60% of its last-stated net asset value per share, compared with an industry average discount of 70%, while Ares Capital traded close to its NAV. The article estimates that MFIC’s equity, worth about $690 million, would exceed $1 billion at Ares Capital’s valuation multiple, potentially adding $330 million of value. Ares Capital’s stock was roughly flat after the news.
3. Private-credit context
Software developers account for 12% of MFIC’s portfolio. The article says investor concerns about technology-related lending have weighed on business development company shares, and describes the acquisition as a public-market example of moving loans between vehicles with different valuations.
