Ares’ $2.6 Billion Deal Prompts Raymond James to Downgrade MidCap Financial
Key Facts
On October 28, Raymond James analyst Robert Dodd downgraded MidCap Financial Investment Corporation to "Market Perform" from "Outperform," a day after Ares Capital announced an agreement to acquire the company in a cash-and-stock deal with an enterprise value of about $2.6 billion. The decision followed a jump in MidCap Financial shares after the announcement, with Dodd saying the market reaction had "largely absorbed the remaining upside" from the deal. The analyst sees limited room for further gains before the expected acquisition closes. The deal separates Raymond James’ view of the stock’s potential return at current levels from the acquisition terms announced by the two companies. MidCap Financial shareholders are expected to receive a mix of cash and Ares shares, subject to the required approvals and procedures.
Ares Capital and MidCap Financial announced the definitive agreement on October 27, saying both companies’ boards had unanimously approved it. Under the announced terms, the expected total consideration is $10.88 for each fully diluted MidCap Financial share, comprising about $1.21 in cash and $9.67 in Ares Capital shares. The stock component remains subject to adjustment for special distributions MidCap Financial may pay before closing. The deal’s enterprise value of about $2.6 billion represents the value of the transaction as a whole, while the $10.88 consideration is what shareholders are expected to receive per share. MidCap Financial is also expected to distribute its remaining undistributed taxable net income to shareholders as a special distribution, with the Ares share consideration reduced by the amount of that distribution.
Ares said the proposed consideration represents a premium of about 30.1% to MidCap Financial’s closing share price on October 26, the last close before the deal was announced, and a premium of 25.8% to its 30-day volume-weighted average price through the same date. On October 27 trading, MidCap Financial shares jumped more than 23% after the announcement, while Ares shares traded little changed, according to Reuters coverage. EL7 data show MidCap Financial closed at $10.26 and Ares at $18.51 on October 27. The $10.26 figure is not MidCap Financial’s closing price on October 26; Ares cited its offer premium against the close on the day before the announcement. Dodd said the post-announcement move had already absorbed most of the remaining upside, explaining the downgrade to "Market Perform."
Before the acquisition plan was announced, MidCap Financial shares traded at about 60% of the latest reported net asset value per share, compared with 70% for the sector, according to Reuters, citing Raymond James analysts. The comparison provides context for the deal’s pricing: the announced premium was over the pre-announcement market price, while the company’s net asset value estimate was above that price. MidCap Financial preliminarily estimated net asset value at about $12.86 a share on September 30, 2026. The company is due to report final third-quarter results on November 5, and the final figure may differ from the preliminary estimate. One of the deal’s reference figures is therefore based on preliminary data that predate the scheduled results.
Ares described the deal as moderately accretive to core earnings per share and said it supports its future distributions. The outlook comes as Ares’ third-quarter 2026 results showed net investment income of $0.46 a share, compared with declared and payable distributions of $0.48 a share. In the third quarter of 2025, net investment income and distributions were both $0.48 a share. The company thus links the acquisition to its aim of supporting earnings and distributions, while the characterization of its impact as moderately accretive remains its own estimate. Completing the deal would expand Ares’ investment base, based on the figures the company reported for the expected portfolio.
Ares expects its portfolio after closing to include more than 800 companies and its fair value of investments to exceed $31 billion, based on data as of September 30, 2026. Ares is acquiring MidCap Financial, a business development company focused on direct lending, in a deal combining cash and Ares shares. The agreement is expected to close in the first half of 2027, subject to approval by MidCap Financial shareholders, regulatory approvals and customary closing conditions. Until then, the consideration remains subject to adjustments related to special distributions that MidCap Financial intends to declare and pay. Final third-quarter results are also expected on November 5, which may update the estimated net asset value of $12.86 a share.