Mergers, Acquisitions and Other Strategic Transactions Involving BDCs
Given the recent unprecedented market conditions and the changed competitive landscape, there has been a significant increase in the number of mergers, acquisitions and other strategic transactions involving business development companies (BDCs). Over the last year or so, we have witnessed a steady increase in the number of BDCs entering into discussions with other BDCs or strategic acquirers and completing transactions including possible debt or equity financing, acquisition or disposition of assets, mergers and other strategic transactions.
This increased activity begain with in the first announced BDC acquisition of another BDC since the Allied Capital Corporation merger transaction in 1997. On August 3, 2009, Patriot Capital Funding, Inc. (Patriot) and Prospect Capital Corporation (Prospect) entered into a merger agreement pursuant to which Prospect would acquire Patriot, and Patriot would cease to exist. The merger closed on December 2, 2009, and we advised Patriot on virtually every aspect of the transaction, including corporate, securities, investment company, tax, corporate finance and employee benefit matters.
On October 26, 2009, Allied Capital Corporation (Allied) and Ares Capital Corporation (Ares) entered into an agreement and plan of merger, whereby Ares would acquire Allied, and Allied would cease to exist. The merger closed on April 1, 2010, and we advised Allied on virtually every aspect of the transaction, including corporate, securities, investment company, tax, corporate finance and employee benefit matters.
On April 9, 2010, GSC Investment Corp., (GSC) announced that Saratoga Investment Advisors, LLC (Saratoga) and CLO Partners LLC entered in a stock purchase agreement whereby Saratoga and CLO Partners LLC agreed to purchase a minority stake in GSC as part of a $55 million recapitalization plan to enable GSC to grow its business of lending to middle-market companies. The transaction closed on July 30, 2010 and we advised Saratoga on virtually every aspect of the transaction, including corporate, securities, investment company, tax, and corporate finance. Under the terms of the stock purchase agreement Saratoga replaced GSC Group as GSC's external investment manager and administrator and GSC’s current Chief Executive Officer, Chief Financial Officer and Vice President, Secretary and Chief Compliance Officer were replaced by corporate officers of Saratoga. Similarly, GSC's GSC Group-affiliated board members were replaced by corporate officers of Saratoga and GSC changed its name to Saratoga Investment Corp.
Given the unique regulatory and tax attributes of BDCs, mergers, acquisitions and strategic transactions involving them entail complex tax, accounting and legal issues. Notwithstanding such complexity, the current economic and market conditions make strategic transactions involving BDCs extremely compelling and, as a result, we anticipate an uptick in such activity going forward.
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