Ares Capital to acquire D.C.'s Allied Capital
$648 million sale ends half a century of business development
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Allied Capital, a key part of Washington's finance industry for 50 years, has agreed to sell itself for $648 million in stock to New York investment management company Ares Capital, the companies announced Monday.
The District-based business development firm lends to small and mid-size businesses in exchange for equity. Allied's shareholders will receive 0.325 Ares shares as a result of the sale, valuing the company at $3.47 per share, a 27 percent premium to the closing price on Oct. 23, according to a filing with the Securities and Exchange Commission.
Ares stockholders will own 65 percent of the combined company, and Allied Capital shareholders will control 35 percent.
Allied's auditors earlier this year said they had "doubt about the company's ability to continue as a going concern." One of its lenders terminated "substantially" all the unused commitments of its revolving credit line, Allied said April 1.
"This is the end of the Allied story," said Greg Mason, an analyst at Stifel Nicolaus. "Essentially, Allied had a broken balance sheet."
Before Monday, Allied had dropped 60 percent in the past 12 months amid concern about its financing. Shares of Allied rose 88 cents, or 32 percent, to $3.61 in trading Monday. Shares of Ares gained $1.30, or 12 percent, to $11.99.
The transaction is subject to approval by Allied and Ares shareholders, as well as regulators and some lenders, and is scheduled to close by the end of the first quarter, the two companies said.
Ares, a publicly traded subsidiary of $29 billion investment firm Ares Management, said it plans to shift Allied's portfolio into higher-yielding assets and aims to lower financing costs to limit the need for divestments.
"This transformative transaction creates a middle-market capital provider with leading market coverage, access to capital, scale and diversification," said Michael Arougheti, president of Ares Capital.
