|American Capital Raises $585 Million Equity Fund; Continues to Expand Asset Management Business|
Bethesda, MD – October 5, 2007 – American Capital Strategies Ltd. (Nasdaq: ACAS), with $17 billion of assets under management(1), announced today that it has raised its second private equity fund, the $585 million American Capital Equity II LP (“American Capital Equity II”). The transaction further expands American Capital’s asset management business and further diversifies its investor base, adding six new private equity limited partners. AIG Investments, the asset management arm of American International Group, Inc. (AIG), led the transaction with a consortium of investors including Landmark Partners, Paul Capital Partners, Lehman Brothers Secondary Opportunities Fund and SVG Advisers Limited.
American Capital Equity II is purchasing 17% of American Capital’s equity investments in 80 portfolio companies, for an aggregate cash purchase price of $488 million, subject to adjustments on December 31, 2007. For accounting purposes, the total purchase price includes the $488 million cash purchase price portion, which is 3% below the fair value of these investments on American Capital’s balance sheet at June 30, 2007, and the value associated with an asset management agreement. Through a subsidiary, American Capital LLC, a wholly-owned portfolio company of American Capital, will provide asset management services to American Capital Equity II for a 2% annual management fee on the cost basis of the assets and a 10-30% carried interest in the net profits of American Capital Equity II, subject to certain hurdles. It is anticipated that this will increase American Capital LLC’s revenues by approximately $10 million in the first full year of the agreement. This additional management agreement will be incorporated into the valuation of American Capital LLC and should be accretive to its valuation.
The remaining $97 million committed to American Capital Equity II by the limited partners will be used to fund follow-on investments in the 80 portfolio companies. The transaction occurred in the fourth quarter and the details of the gains and losses on the sale of the equity interests and the increase in fair value of American Capital LLC will be reported as part of American Capital’s year-end earnings release. The proceeds are expected to be used by American Capital for general corporate purposes, including for its investment and lending activities and to repay indebtedness owed under existing revolving credit facilities.
American Capital LLC, a portfolio company of American Capital, now manages six funds with approximately $5.3 billion of third party assets, including European Capital Limited (LSE: ECAS), which was established in 2005. European Capital went public on the London Stock Exchange in May 2007 and has $2.7 billion of assets. Other funds include American Capital Equity I LLC with $0.9 billion in assets, American Capital CLO 2007-1, Ltd. with $0.4 billion of assets, American Capital CLO 2007-2 Ltd. with $0.1 billion of assets and American Capital CRE CDO 2007-1, Ltd. with $0.6 billion of assets.
“We are very pleased to team up with six of the finest private equity fund investors in the world,” said Malon Wilkus, American Capital Chairman, President and CEO. “This transaction increases the assets under management of American Capital affiliates by 10% to a total of 31% of our total managed assets and will contribute to our growing asset management revenue. This highly predictable and recession resistant revenue stream, together with participation in the realized profits of American Capital Equity II, should be accretive to our net operating income per share and our return on equity and thereby contribute to increases in American Capital’s valuation.”
Harvey Lambert, Managing Director and Head of Global Secondaries for AIG Investments commented, “AIG Investments continues to execute transactions in the private equity secondary market and our investment in American Capital Equity II demonstrates the on-going efforts to find and execute the right investment opportunities.”
American Capital LLC, through its subsidiary, will earn approximately $10 million annually in highly predictable and recession-resistant asset management fee income from managing American Capital Equity II. These fees will decline as investments are exited. American Capital LLC anticipates earning incentive fees from its 10-30% carried interest if and when distributions to limited partners exceed their initial investments and subject to certain hurdles.
“During a time when the capital markets are closed for many financial services companies, our ability to raise capital in diverse and flexible ways gives us a tremendous competitive advantage,” said John Erickson, American Capital Chief Financial Officer. “This transaction allowed us to tap a growing set of global investors with significant funds and expertise dedicated to private equity. Our liquidity and ability to fund assets during the market disruption is outstanding.”
In October 2006, American Capital raised its first externally managed U.S. private equity fund, American Capital Equity I LLC, a $1 billion fund. Through June 30, 2007 American Capital Equity I has generated a net 37% compounded annual return to its investors based on the fair value of the investments as of period end.
“Over the past three months, our newest partners have subjected American Capital, including our investment teams, portfolio companies and investment process to extensive due diligence and scrutiny,” said Tom McHale, American Capital Senior Vice President of Finance. “They met with portfolio company management teams and our Investment Teams, interviewed private equity firms with whom we have partnered and reviewed our portfolio company due diligence, valuation reports, third-party due diligence reports and monthly portfolio monitoring information. The decision by these partners, who have a long history of evaluating private equity investments, to participate in this transaction highlights the quality of our investments and the strength of our origination platform.”
ABOUT AMERICAN CAPITAL
American Capital is the only alternative asset management company that is a member of the S&P 500. With $17 billion in assets under management(1), including its investments in externally managed funds, American Capital is the largest U.S. publicly traded private equity fund and one of the largest publicly traded alternative asset managers. American Capital, both directly and through its global asset management business, is an investor in management and employee buyouts, private equity buyouts, and early stage and mature private and public companies. American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions, recapitalizations and securitizations. American Capital and its affiliates invest from $5 million to $800 million per company in North America and €5 million to €500 million per company in Europe.
American Capital has invested directly and through its funds under management approximately $10.5 billion in the last twelve months, over $8.4 billion year to date, approximately $2 billion in the third quarter and $102 million quarter to date. Not including funds under management, American Capital has invested approximately $7.8 billion in the last twelve months, approximately $6.1 billion year to date, over $1.4 billion in the third quarter and $100 million quarter to date. For more information about American Capital’s portfolio, please go to www.americancapital.com/our_portfolio/our_portfolio.html.
As of October 4, 2007, American Capital shareholders have enjoyed a total return of 619% since the Company's IPO — an annualized return of 22%, assuming reinvestment of dividends. American Capital has paid a total of $1.9 billion in dividends and paid $25.16 dividends per share since going public in August 1997 at $15 per share.
Companies interested in learning more about American Capital's flexible financing should contact Mark Opel, Senior Vice President, Business Development, at (800) 248-9340, or visit http://www.acas.com/ or http://www.ecas.com/.
Performance data quoted above represents past performance of American Capital. Past performance does not guarantee future results and the investment return and principal value of an investment in American Capital will likely fluctuate. Consequently, an investor's shares, when sold, may be worth more or less than their original cost. Additionally, American Capital's current performance may be lower or higher than the performance data quoted above.
This press release contains forward-looking statements. The statements regarding expected results of American Capital are subject to various factors and uncertainties, including the uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional, national or international economic conditions, or changes in the conditions of the industries in which American Capital has made investments.
(1) Assets Under Management is an estimate of internally and externally managed assets as of September 30, 2007 and does not include any fair value adjustments subsequent to June 30, 2007.
SOURCE: American Capital Ltd.www.americancapital.com