Ares Capital Corp, an investment company focused on mid-sized firms, is buying smaller rival American Capital Ltd in a cash-and-stock deal valued at $3.4 billion to better fill the credit gap created as big banks turn cautious.
The deal, which does not include American Capital's mortgage management unit, comes about five months after the Bethesda, Maryland-based company said it would solicit offers.
American Capital has been under fire from activist investor Elliott Management Corp for its performance and its plan to spin off some assets into a business development company (BDC).
Ares Capital said on Monday that it offered $6.41 per share and 0.483 of its share for each share of American Capital.
American Capital Mortgage Management LLC will be sold separately to American Capital Agency Corp for $562 million.
"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," Ares Capital co-Chairman Michael Arougheti said.
Reuters reported in April, citing sources, that Ares Capital's parent Ares Management LP and Apollo Investment Corp were among the potential suitors for American Capital.
Ares Capital and American Capital, which are among the biggest BDCs in the United States, had combined investments of more than $13 billion at fair value as of March 31.
BDCs have been hit by highly competitive underwriting conditions and muted deal flow in middle market lending, affecting their share prices, portfolio yields and access to growth capital.
In November, Elliott Management lobbied against American Capital's plan to spin off its BDC business to create a standalone asset manager, saying the plan "will put valuable assets at risk" and "serve to entrench management."