Ares Capital has agreed to acquire private credit fund MidCap Financial Investment (MFIC) from Apollo in a stock-and-cash transaction for an enterprise value of approximately $2.6bn (£1.9bn), cementing its position as the largest publicly traded business development company (BDC), which is managed externally by a subsidiary of Ares Management.

The acquisition is also expected to further strengthen Ares Management’s position as a direct lending platform to US middle-market companies.

Read more: Private credit drives record $35bn fundraising quarter for Ares

Under the terms of the definitive merger agreement, shareholders in MFIC will receive $10.88 per fully diluted share of MFIC common stock, comprising $1.21 per share in cash, provided by a subsidiary of Ares Management, and $9.67 per share in Ares Capital stock.

The transaction is expected to be “modestly accretive” to Ares Capital’s core earnings per share, while the combined company will benefit from MFIC’s portfolio of senior secured investments with “compelling current yields”.

Following completion of the deal, Ares Capital’s pro forma portfolio will increase to more than 800 portfolio companies and over $31bn of investments at fair value as of 30 September.

In addition, MFIC’s portfolio is expected to add more than 200 incumbent positions and further expand the number of sponsors Ares Capital has transacted with to more than 600. 

The transaction is set to close in the first half of 2027, subject to the approval of MFIC’s stockholders and regulatory approvals.

Upon completion, Ares Capital will continue to be externally managed by Ares Capital Management, while the existing Ares Capital board and management team are expected to remain in place.

Read more: Apollo to take minority stake in Abu Dhabi’s Mubadala Capital

“The MFIC transaction brings a diversified portfolio and valuable borrower and sponsor relationships, which, when combined with our differentiated private credit investment capabilities, we expect will bolster the long-term growth profile of Ares Capital. In addition, we believe this transaction will further build on our successful track record of acquiring publicly traded BDCs and supporting attractive risk-adjusted returns over time,” said Kort Schnabel, chief executive of Ares Capital.

Scott Lem, chief financial officer and treasurer of Ares Capital, called the financial merits of the transaction “compelling”. 

“We expect the transaction to be accretive to core earnings and supportive of our future dividends, while preserving the balance sheet strength and financial flexibility that have been central to Ares Capital’s long-term performance. Importantly, the financial support from Ares Management will provide MFIC stockholders with additional cash value alongside attractive equity in Ares Capital’s industry-leading business,” Lem said.

MFIC is a closed-end diversified management investment company that is externally managed by a subsidiary of Apollo Global Management.

John Zito, co-president of Apollo Asset Management, added that Apollo will continue to invest in and grow its middle-market direct lending franchise, including through the MidCap Financial platform.

Read more: Ares to appoint new principal for Asia direct lending