Deals of the Year: Small Lender –

For Antares, 2005 was a very good year. In an increasingly competitive market, the Chicago-based middle market lender grew market share, solidified its reputation as a consummate dealmaker, and was acquired by powerhouse GE Commercial Finance.

The acquisition “really puts us at the top,” says David Brackett, former managing director of Antares and senior managing director of the new firm, GE Antares Capital. “We are the major player” of middle market lenders (facilities less than $225 million) with 100 investment professionals and 88 commitments totaling $7.2 billion. The next largest player, in fact, is CFSB with 41 commitments totaling $4.5 billion, according to middle market league tables.

“GE gives Antares more access to information and a lower cost of capital so they should be even more competitive in the market,” says Michael Fisch, president of the private equity firm American Securities Capital Partners.

Antares, which won Buyouts’ Small Lender of the Year award, is known for its ability to execute quickly, its roster of quality clients, and its talented group of dedicated professionals, most of whom have been with the company since its founding.

“When you give Antares a deal, they are very quick in their response,” says Dave Hawkins, a partner at the private equity firm Code Hennessy & Simmons. “They say either yes they like it or no they don’t. They are very direct while other lenders often just pull you along. You also don’t have to call Antares every four days. You don’t have to babysit the deal.”

Last year, the firm, which offered a broad range of products such as cash-flow senior debt, asset-based lending and equity co-investments, had commitments totaling $3.75 billion, representing an increase of almost 20% from the prior year. As of Sept. 30, it had $2 billion under management and managed another $2 billion through collateral debt obligations (CDOs), totaling roughly $4 billion.

A pioneer in using middle-market loans as the primary collateral of CDOs, the firm raised its sixth CDO in 2005. The $500 million fund is a blend of middle market, broadly syndicated, and mezzanine loans, and is solely managed by Antares.

Before the GE acquisition, Antares had grown to 40 investment professionals with 25 other associates in finance and operations. Twelve former executives of Heller Financial, which was itself acquired by GE in 2001, started the firm in 1996. All 12 have remained with the firm throughout the past decade. Such loyalty is unusual given the “turnover rate” in the financial world, says Brackett.

In spring of 2005, Antares, 80% of which was owned by Massachusetts Mutual Life Insurance and 20% by management, began exploring strategic opportunities. “It was clear as the market changed, we needed to grow to the next level,” says Shear. “We had relationships but we needed a bigger balance sheet and more resources for continued growth.”

As a testament to Antares’ reputation and strength, a broad range of buyers were reportedly interested, including Allied Capital Corp., Blackstone Group and Kohlberg Kravis Roberts & Co. Initially, Antares management team was not interested in GE. The founders had watched friends and colleagues grow unhappy after GE’s acquisition of Heller Financial and did not want to experience the same fate. They were also aware of GE’s reputation of putting itself before its clients.

“It was a lot of time and a lot of meetings before we got comfortable with a combination that would work,” says Barry Shear, former president of Antares and the new president of GE Antares Capital. “From the first meeting, the first thing GE said was we understand that mistakes were made with the Heller acquisition and we aren’t going to repeat them.”

“They did not want to be swallowed up by GE,” says Stuart Aronson, general manager of GE Global Sponsor Finance. “They wanted an organization that was the best of both.”

And according to Aronson, Brackett and Shear, this is precisely what has happened since GE acquired Antares in Oct. 2005 for a reported $1 billion. Fears of another Heller Financial have faded. “Sometimes the second marriage works out better,” says Brackett.

While Antares is now part of a large multinational, GE has worked hard to maintain its nimble structure. “The decision making is almost identical to what Antares had,” says Aronson. “We have removed layers. Those people who are dealing with customers are one call away from the decision-makers.”

“They have pushed credit responsibilities down” and that has helped GE Antares to be active in the market and streamlined, says Shear.

Eighty-five percent of their workday is the same as before GE, adds Shear, and only 15 % is spent working “through some of the bureaucracy and finding the right resources.”

Clearly, though, the acquisition has greatly broadened Antares’ strike zone. “We were generalists primarily doing cash-flow deals in the U.S. and GE is truly a global financing partner,” says Brackett. GE’s operational expertise and strength in vertical markets has enabled Antares to further penetrate areas such as health care, energy and media.

GE Antares can also leverage GE’s rich resources. In a program called “At the Customer, For the Customer,” a dedicated GE team offers advice and best practices to operating companies in sponsors’ portfolios. Last year, for example, GE invited some of these companies to China to learn about the best way to do business with one of the world’s fastest-growing, most-dynamic economies.

“Antares standing on its own would never be able to offer that to our customers,” says Shear.