Ares Capital, owned by Ares Management, will purchase American Capital through a deal carrying a value of $3.4 billion.
Ares Capital will be paying $14.95 per share in a combination of cash and stock for the transaction, which will not include American Capital Mortgage Management. American Capital Agency Corp. will be the one to purchase the excluded unit for a sum of $562 million, or $2.45 per share.
"The growing demand for capital from middle-market borrowers has created the need for flexible capital providers like us to fill the financing gap as banks continue to retrench from the market," said Ares Management President Mike Arougheti in a statement.
Elliott Management, the hedge fund run by Paul Singer, who owns 14.4 percent of American Capital, had long criticized the company for its poor performance, in addition to the overly generous compensation being provided to founder Malon Wilkus. The activist investor had argued for a change to American Capital and its board of directors, along with cost reductions and a capital allocation and portfolio review, prior to the sale, which it has endorsed.
The transaction is expected to close within the next 12 months. Shareholders of Ares Capital will own around 74 percent of the combined entity after the transaction is completed, with the total investments of the merged company coming in at over $13 billion at fair value as of March 31.
Ares Capital, founded in 1997, has investments in credit, real estate and private equity, with about $94 billion under management. It acquired Allied Capital, another mid-market finance company based in Washington, back in 2009 for $648 million.
Ares Capital expects the acquisition of American Capital to instantly provide a boost to the company's core earnings per share. The company's stock, however, fell by 4.02 percent to $14.58 per share on heavy trading volume after the agreement to acquire American Capital was announced.
