Private credit lenders turn to M&A as listed BDCs trade below book

Private credit spent most of the past decade raising money faster than it could lend it. In the last week of October the industry's biggest names were busy buying one another instead. On 27 October Ares Capital, the largest listed business development company (BDC) in the United States, agreed to acquire Apollo's MidCap Financial Investment Corporation (MFIC) in a stock-and-cash deal with a total enterprise value of about US$2.6bn. A day earlier Apollo agreed to take a minority stake in Mubadala Capital, the Abu Dhabi-backed alternative asset manager, and on 27 October OMERS agreed to buy an indirect minority interest in the Australian private credit firm La Trobe Financial from Brookfield.

The deals point the same way. With direct lending growing more slowly, credit quality under scrutiny and many listed vehicles trading below the value of their loan books, scale and permanent capital have become the prizes. Buying an existing platform is often the quickest way to get both.

Ares buys a discounted portfolio

Under the Ares Capital agreement, MFIC shareholders will receive US$10.88 a share, made up of about US$1.21 in cash funded by an Ares Management subsidiary and about US$9.67 in Ares Capital stock. The price is a 30.1% premium to MFIC's closing price on 26 October and 25.8% above its 30-day volume-weighted average. It is still below MFIC's preliminary net asset value of about US$12.86 a share at 30 September, a gap that shows how far sentiment towards smaller lenders has fallen.

Ares said the combined portfolio would exceed US$31bn at fair value across more than 800 companies, and that MFIC would add more than 200 incumbent positions. It expects the deal to be modestly accretive to core earnings per share. Wells Fargo has agreed to provide US$750m of additional secured financing, and Apollo affiliates holding 5.2% of MFIC have signed voting support agreements. Completion, expected in the first half of 2027, needs MFIC shareholder and regulatory approval.

The Motley Fool noted that MFIC had cut its quarterly dividend from US$0.38 to US$0.31 a share earlier in the year and that its net asset value per share fell 3.2% in the second quarter because of credit weakness at some borrowers. Ares Capital's own core earnings of US$0.46 a share in the third quarter were slightly below its US$0.48 quarterly dividend.

Why sellers are listening

The Ares deal did not come out of nowhere. On 9 October Private Equity Wire, citing Bloomberg, reported that private credit managers including Ares, Barings, BC Partners and Churchill Asset Management had examined potential deals involving troubled funds, and that Apollo had explored options for MFIC's portfolio. BlackRock's TCP Capital, WhiteHorse Finance and Investcorp Credit Management BDC have each said they are reviewing strategic options that could include a sale.

The logic is straightforward. A BDC that trades below net asset value struggles to raise new equity without diluting existing holders, which limits its growth, and weaker direct lending activity makes that harder still. Investors have withdrawn record amounts from non-traded funds this year. For a manager with a small, struggling vehicle, selling it or its management contract frees resources for larger priorities. For a large buyer, an acquisition adds fee-earning assets and borrower relationships faster than organic lending. Finimize, summarising Reuters reporting, said a wide discount lets a bigger buyer use its own shares as currency, combine them with cheaper funding and spread public-company costs over a larger asset base.

Possible structures range from outright mergers to purchases of management contracts or portfolio assets, according to the Bloomberg report. Ares and Blackstone have already built large BDC platforms partly through acquisitions, and BC Partners has combined two of its listed vehicles.

Capital moves to the platforms

Consolidation is also happening one level up, among the managers. Apollo's stake in Mubadala Capital comes with an expected US$5bn of commitments from Apollo and other minority shareholders to Mubadala Capital's strategies at initial close, while Mubadala Investment Company remains majority owner; CNBC reported the stake at nearly 10%. OMERS joins Brookfield and Axight as an institutional shareholder in La Trobe, with Brookfield remaining the majority owner; Financial Standard put the stake at close to 20%.

Banks are part of the story too. On 16 October Carlyle agreed to buy a portfolio of about US$7.7bn of unsecured personal loans from Truist, led by its asset-backed finance team. Deals of this kind move consumer and specialty lending off bank balance sheets and into private credit vehicles.

None of the October deals has closed. Ares expects to complete the MFIC purchase in the first half of 2027, Apollo's Mubadala Capital investment is due to close in the fourth quarter of 2026, and OMERS expects to complete its La Trobe purchase by January 2027. If listed BDC discounts persist, more of the small lenders now reviewing their options are likely to end up inside the largest platforms.