Ares Capital’s Performance Improves amid ACAS Acquisition News

Ares Capital (ARCC) posted EPS (earnings per share) of $0.43, beating Wall Street analysts’ estimate of $0.39 in 3Q16. The company’s net asset value stood at $5.2 billion, or $16.59 per share, as of September 30, 2016. That compares to $16.62 in the previous quarter. The company is yet to complete the acquisition of American Capital (ACAS). The combination of the two would create a giant in middle market lending.

Ares Capital’s portfolio investments at fair value stood at $8.8 billion as of September 30, 2016, compared to $8.7 billion in the corresponding quarter last year and $8.9 billion in the previous quarter.

In a company press release from November 2, Kipp deVeer, CEO (chief executive officer) of Ares Capital, said, “We generated strong results in the third quarter with core earnings meaningfully in excess of our quarterly dividend and healthy origination activity with $1.5 billion in new commitments. Going forward, we remain very well positioned with our market leading direct lending platform, strong balance sheet and our newly launched, higher yielding Senior Direct Lending Program. In addition, we are enthusiastic about the future value creation from our potential acquisition of American Capital, which we expect could generate meaningful earnings and net asset value accretion and strategic benefits for our shareholders in the next several years.”

Here’s how some of Ares Capital’s peers in investment management fared with their quarterly earnings:

• Blackstone Group (BX) beat estimates.
• KKR (KKR) beat estimates.
• Prospect Capital (PSEC) missed estimates.

Together, all these companies form 5.7% of the PowerShares Global Listed Private Equity ETF (PSP).

Ares Capital is a financial services company providing debt and equity funding solutions to US middle-market companies, investment-firm-backed businesses, and power generation projects. The company originates and invests in senior mezzanine debt, secured loans, and also in equity investments via its national direct origination platform.

It acts as a closed-end fund house and is regulated as a business development company. Its main objective is to generate both current income and capital appreciation through various investments.

In the following parts of this series, we’ll study Ares Capital’s performance, portfolio, yields, capital deployment, ACAS acquisition, dividends, and valuations.