A particular type of business accomplishes significant tasks without drawing much notice. Among them is the Nasdaq-traded MidCap Financial Investment Corporation (MFIC). Mid-sized American companies that are too big for a local bank and too small for the bond market can borrow money from it. This unglamorous, frequently misinterpreted niche is currently at the heart of one of the more subtly important M&A transactions in private credit.
Ares Capital Corporation declared on October 27 that it had reached an agreement to buy MFIC in a stock-and-cash deal worth $10.88 per share, consisting of $1.21 in cash and $9.67 in Ares stock. MFIC’s stock increased by over 26% in just two weeks. The stock hardly moved after the company released its third-quarter earnings, which fell short of analyst expectations for both revenue and net investment income. The quarterly numbers had already been forgotten by the market. One way to do that is through a takeover announcement.
Even though the Q3 results are no longer the main focus, they are still important to comprehend. Net investment income was $0.34 per share, lower than the analyst estimate of about $0.37 and down from $0.40 in the prior quarter. $61.98 million in revenue was roughly 6% less than anticipated. These misses aren’t disastrous, but they also aren’t close calls. With net repayments for the quarter totaling $189 million compared to gross new fundings of only $11 million, the earning asset base has been declining. The portfolio’s fair value has decreased from $2.77 billion at the beginning of the quarter to about $2.55 billion.
The NAV trajectory is more visually striking than the income miss. From $14.66 a year ago to $12.86 as of September 30, net asset value per share has decreased for four straight quarters. According to management, credit-related losses concentrated in a limited number of portfolio positions are the reason for this significant decline. Merx Aviation Finance accounted for just 1.7% of the entire portfolio after making a $28 million repayment. Nine months into 2026, net investment income of about $94 million has been surpassed by net realized and unrealized losses of over $155 million.
It’s important to note that Ares’ $10.88 deal price is less than the $12.86 NAV amount. Given that MFIC’s NAV has been declining and the deal pricing reflects where the market was valuing the company rather than the accounting book value, that disparity isn’t necessarily a warning sign. In order to clear undistributed taxable income, the company has also stated that it will make special distributions prior to closing, which could result in a slight change in the total value that shareholders receive. The precise outcome of that math is still unknown.
The biggest publicly traded business development firm in the US is Ares Capital. By purchasing MFIC, it increases its exposure to middle-market loans made through MidCap Financial, which is run by an Apollo Global Management affiliate. Smaller BDCs find it difficult to match the institutional credibility and deal flow that MFIC has always had thanks to its Apollo connection. According to some interpretations, the real goal of the agreement is for Ares to absorb that origination pipeline.
This acquisition seems to be more about the future of private credit than it is about MFIC’s recent performance. For years, the BDC industry has been consolidating. In this industry, scale is important because it affects borrowing costs, deal access, and the capacity to hold larger positions without concentration risk. Observing a mid-sized lender merge into a much bigger platform seems like a part of a larger narrative rather than a singular incident.
The $0.31 per share December dividend for current MFIC shareholders has been announced and will be paid on December 22. Based on current pricing, the forward yield is approximately 12%. That figure is a fair stand-in while investors wait, but it won’t matter as much once the deal closes.
