Ares Capital strikes $2.6 billion deal to merge with MidCap Financial
Key Facts
Ares Capital and MidCap Financial Investment on October 27 announced a definitive merger agreement valued at about $2.6 billion, in a move Ares said would boost its scale, portfolio diversification and market presence. The deal provides for MidCap shareholders to receive about $10.88 per diluted share in a mix of cash and Ares Capital stock. The consideration includes about $1.21 in cash from a subsidiary of Ares Management and about $9.67 in Ares Capital common stock, with the value subject to an adjustment tied to MidCap's special distributions. The agreement therefore combines cash and stock rather than an all-cash acquisition. Ares expects the deal to be modestly accretive to core earnings per share and to support future distributions, according to the filing with the U.S. Securities and Exchange Commission.
The announced consideration represents a 30.1% premium to MidCap's closing share price on October 26 and is 25.8% above its volume-weighted average price for the thirty days ended on that date. According to Ares' announcement, the share closed at $8.36 on October 26, the comparison basis also cited by Reuters. The comparison offers a measure of the bid's value against the stock's trading before the announcement, while the consideration's value remains subject to the deal terms and stock adjustment. MidCap estimated its preliminary net asset value at about $12.86 per share as of September 30. The company said the final figure would be released with its third-quarter results, expected on November 5, and could differ from the preliminary estimate.
The agreement includes a special distribution by MidCap intended to pay out taxable income that has not been distributed and is expected to remain at closing. The Ares Capital stock component of the consideration will be reduced by a dollar for every dollar of that distribution's value, under the terms of the announcement. The final consideration for shareholders is therefore tied to the settlement of the special distribution, as well as to the announced cash-and-stock mix. Before accounting for the distribution's effect, current Ares Capital shareholders are expected to own about 95% of the combined company, compared with about 5% for MidCap shareholders. This expected allocation leaves the larger stake with Ares shareholders after the deal closes.
The deal aims to expand Ares Capital's portfolio to more than 800 companies, with investments exceeding $31 billion in fair value, based on September 30, 2026 data and post-closing estimates. The company describes MidCap's portfolio as focused primarily on first-lien, asset-backed loans originated directly through private negotiations with U.S. middle-market companies. Incorporating these assets would broaden Ares' portfolio and borrower relationships, according to the rationale the company presented for the deal. The boards of both companies unanimously approved the agreement. MidCap's board acted on the unanimous recommendation of a special committee comprising independent directors.
The deal comes as Ares Capital's third-quarter results showed declines in some income measures from a year earlier. Core earnings per share were $0.46, compared with $0.50 in the third quarter of 2025, while net investment income was $328 million, compared with $338 million. In the same quarter, the company recorded about $2.1 billion in new investment commitments, of which $1.6 billion was funded, and exited $2.5 billion in investment commitments. Ares said a slower deal environment led to a more moderate pace of new investments during the quarter, while its pipeline of deals pending closing rose markedly from the previous quarter. It added that transaction activity was improving as the fourth quarter began.
At the time of the announcement, Ares Capital shares fell 2.4% in premarket trading, while MidCap shares rose 18%, Reuters reported. In the latest close available in data as of November 3, Ares Capital shares stood at $19.01 and MidCap shares at $10.30. The latest data also show that Ares' investments at fair value totaled $29.213 billion on September 30, compared with $29.485 billion at the end of 2025, while the number of portfolio company investments rose to 636 from 603. Non-accrual loans were 2.4% of investments at amortized cost in September, compared with 1.8% at the end of 2025; on a fair-value basis, the ratio was 1.4% compared with 1.2%. The merger is expected to close in the first half of 2027, subject to MidCap shareholder approval, regulatory approvals and customary closing conditions.