Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

4 BDC Execs Say This Will Drive Earnings Growth

Page 1 of 2

Business development companies make money by borrowing low and lending high. But the constant problem is finding new ways to invest — new deals, new loans, and new partners to make it all happen.

On a recent conference call with RBC Capital Markets, four executives of the largest business development companies all agreed that conditions were improving for heavier lending volumes and new growth avenues.

I’ve compiled a list of quotes from BDC execs on their view of mergers and acquisitions (M&A) in driving bottom-line profits.

BDC execs are bullish on M&A

“M&A… begets M&A, and once you start to get all those ingredients and you see transaction volume increasing, particularly against the backdrop of strong earnings fundamentals and healthy credit markets, it moves pretty quickly.

Over the last two quarters we’ve actually seen the percentage of new deal flow or new lending opportunities coming from new M&A versus refinancing and recapitalization of existing companies increase dramatically. So I think some of that pent-up demand, if you will, is starting to play out.”

Mike Arougheti, CEO at Ares Capital Corporation (NASDAQ:ARCC)

“They claim they have a lot of discipline, that they can’t put this money to work. But that money has a time clock on it. So, we think that they’re going to eventually have to go up to higher level multiples, and they’re going to have to pay for it, which creates some great financing opportunities.”

Len Tannenbaum, CEO at Fifth Street Finance Corp. (NASDAQ:FSC)

“The M&A market is finally picking up and we’re very happy with what we’re seeing. Cisco, Microsoft, and Googles of the world are trying to find new technological solutions because they’ve realized innovation is not necessarily their forte — it’s a lot cheaper to use their balance sheet to buy…technology — so we’re seeing a very robust market there. We needed M&A in the technology world for quite some time and it’s finally happening after literally waiting 36 months.”

Manuel Henriquez, CEO at Hercules Technology Growth Capital Inc (NYSE:HTGC)

“There was a huge wave of repricing to the end of last year in all markets. And obviously in the first quarter of the year, in the syndicated market, close to 90% of all deals that were done…were just repricing. We underestimated…from a mathematical perspective, is that it made sense to do M&A over the last two years. But the one thing we probably underestimated is there’s just, you know, post-crisis there’s a lot of scar tissue built up in the system, and a lot of risk aversion on the behalf of corporates…and, quite frankly, that seems to be abating.”

Ted Goldthorpe, President of Apollo Investment Corp. (NASDAQ:AINV)

Consensus can be scary. When everyone reaches the same conclusion, the opposite tends to happen. But the data supports the view that private equity funds need to start making new buyouts.

In July, Reuters reported that private equity funds were sitting on a record $145 billion of funds that had to be used in 2013. If the cash goes unused, it will be returned to investors, and buyout shops will forgo potential fee revenue.

Why M&A matters

Mergers and acquisitions are critical for the business development company industry. First, mergers and acquisitions are generally debt-financed, which gives BDCs the chance to find new deals to make high-interest loans.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!