AlphaRank Merger & SPAC Monitor – BDCs and M&A: When Worlds Collide

BDCs and M&A are closely linked because BDCs finance middle-market leveraged buyouts, while M&A activity drives loan growth, portfolio turnover and fees.

• Ares Capital agreed to acquire Apollo’s MidCap Financial Investment Corporation for $2.6 billion, paying MFIC holders a 30.1% share-price premium while acquiring its loan portfolio at 0.85x NAV, creating potential NAV accretion for ARCC shareholders.
• Ares previously acquired Allied Capital in 2009 at a 27.1% share-price premium and a 48.2% NAV discount, and American Capital in 2016 at an 11.4% premium and a 13.6% NAV discount; ARCC says both deals generated returns above 20%.
• Cion Investment Corp and SPAC K&F Growth Acquisition II proposed merging Pearl, an AI-powered wedding marketplace owned through David’s Bridal, into a new $350 million public company, although the transaction faces substantial execution risks.
• North American M&A remained robust in October, with 23 announced mergers worth $200 billion, including six Canadian transactions exceeding $60 billion.
• SPAC activity weakened sharply: six IPOs raised $675 million in October versus an average of $2.9 billion per month over the prior year, while ten announced SPAC mergers totaled $6.7 billion; the average blank-check company traded at a 1.5% NAV discount, despite a 5.4% average SPAC arbitrage yield.

Takeaway: The article sees consolidation and valuation discounts creating opportunities in BDC M&A and potentially SPAC arbitrage, but investors must account for transaction-closing, credit and execution risks.