Allied Capital–End of an Era, End of a Local Institution. In October, Allied Capital Corporation (NYSE:ALD) announced that it was selling to Ares Capital Corporation in NYC (NASDAQ:ARCC). Thus ends one of the most storied finance companies in the region—a company whose origins pre-date almost all of us who have benefited from having this expertise in the region. George Williams, who is in his 80’s, founded the company fifty years ago and took it public shortly thereafter. Allied was a clear pioneer in the realm of small business and mezzanine lending. Besides spearheading a whole new asset class, it is probably fair to say that Allied professionals invented and refined numerous lending practices and techniques that have spread through the industry. Scores of industry professionals cut their teeth at Allied or in its portfolio companies. Prominent among them in this region include David Gladstone and Chip Stelljes at Gladstone Capital, Will Dunbar at Core Capital and Jon Ledecky who was hyper-active locally in the last decade. These are among the positive things that can be said about Allied. Over the years, Allied has had or created more than its share of problems. First of all, like Drexel in its heyday, no one should ever confuse Allied with your friendly neighborhood banker. Mezz lending is a tough jungle to survive in, and it gets more dangerous when you concentrate on the smaller end of the market. Allied people learned early on that you had to exact tough terms from companies, so tough they were. Then, in the past decade, Allied has had institutional and regulatory problems in how it accounted for its assets which created a rescue situation and probably made the company’s sale inevitable. The sale of Allied looks pretty good on the surface—$648M paid which represent a 27% premium on Allied Stock. Unfortunately, this is another example of a trend we described in last month’s Deal News (see Sept. Mid-Atlantic Deal Review, Deal Notes,“SkyTerra”). A premium on a stock that has fallen off a cliff is not much of a premium. For most of the past decade, Allied traded between $20 and $30 per share. It is selling to Ares for $3.47 per share. As a postscript, we would like to list some of the names of those who passed through Allied or its portfolio companies, a list that flowed from the memory of Will Dunbar. If you know of more, please feel free to add them through Comments to this note. Cabell Williams and Susan Gallagher of Williams & Gallagher, still in D.C. Randy Klueger with Will at Core Capital. Phil McNeill of SPP Mezzanine Partners in Fairfax. Mike Grisius, still local. Tom Westbrook runs the Mezz/Buyout business at BB&T in North Carolina. Erik Shott is a buyout partner in NYC. Rob Edwards is in the buyout group of BofA. Ed Ross runs a mezz fund out of Chicago. Rick Fearon started a hedge fund in CT. Shep Robinson is doing real estate workouts for Wells Fargo. We are sure that the list is much longer.
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