Canada Pension Plan Investment Board’s pending US$12 billion deal to buy Antares Capital from General Electric Co marks its largest acquisition to date as the $265 billion retirement system looks to add a “large, scalable and growing opportunity” offered by the largest player in U.S. middle-market loans, a key CPPIB executive said.
“While middle-market credits are smaller, they tend to offer attractive returns, deeper access to, and familiarity with borrowers for more in-depth due diligence and tend to have ‘stickier’ relationships over the long term,” said Adam Vigna, managing director and head of principal credit investment for CPPIB (pictured below).
CPPIB’s scale, investment horizon and ability to fund future growth “positioned us as an ideal partner for the management team,” Vigna said in an e-mail to Buyouts.
When General Electric’s GE Capital unit announced plans to sell its Antares sponsored lending business on April 10, CPPIB moved quickly to buy it after concluding it would be unable to efficiently replicate or build without purchasing an existing platform, Vigna said.
CPPIB plans to run Antares Capital as a standalone business once the deal closes as expected in the third quarter. Antares Capital holds the leading position in the U.S. middle-market private equity lending space with market share of about 22 percent.
David Brackett and John Martin, managing partners of Chicago-based Antares, said CPPIB’s high debt rating and well-capitalized balance sheet will allow Antares to offer “very competitive” pricing on loans. The Antares practice of offering revolving loans with its other debt packages will continue.
Antares is holding a book of more than 400 loans, but more importantly, Brackett and Martin said the firm offers a deep bench of experience in originating middle-market deal flow in the leveraged loan market. GE managed to find a buyer in just a few weeks.
“There was certainly a sense that we were best positioned if we would move quickly in identifying a new buyer,” Martin said.
“The amount of interest in the Antares platform was almost overwhelming,” Brackett said. “What that told us was that the ability for investors to be able to participate in the kind of credit we originate was very high. It’s viewed as a very attractive place to invest in the current marketplace.”
Ted Koenig, CEO of middle-market lender Monroe Capital, said the deal may represent the best possible outcome for GE Antares.
“They got a non-regulated buyer with plenty of capital that’s committed to the space, which is what the business needed,” Koenig said.
JVs up for grabs
Wells Fargo analyst Jonathan Bock said the Antares purchase price of US$12 billion implies a premium of US$600 million on the book value of the business and its loans. The deal does not include US$7.3 billion in GE’s senior secured loan program (SSLP) run with Ares Capital Corp, the business development company (BDC) of Ares Management. It also doesn’t include its middle-market growth program, a joint venture between GE Capital and affiliates of Lone Star Funds.
If CPPIB doesn’t reach deals with both parties, GE intends to wind down its investments there.
Bock said he expects Antares and Ares will no longer partner on an SSLP.
“We believe Ares will announce an agreement with another party to assume the program … on similar financing terms,” Bock said.
A spokesman for Ares declined to comment. The firm said May 4 it was exploring other relationships, but it didn’t mention any specific names.
Photo of flexed muscle courtesy of Shutterstock
Photo of Adam Vigna courtesy of the Canada Pension Plan Investment Board