A wave of consolidation could sweep through U.S. small business lenders as the beleaguered industry seeks to take advantage of low valuations to combine forces with rivals or larger, stronger firms in a bid to survive.
Once a dominant player in the business development company (BDC) industry,
Smaller BDCs, such as
“To the extent business development companies remain undervalued, with a lot of them trading [in the] 60% range of the net asset value, it presents an opportunity for a buyer to come in and buy the assets at a substantial discount and enjoy good returns,” says Scot Valentin, an analyst with
Other distressed debt firms may also be interested in buying a BDC as they have raised significant amount of money recently, says Greg Mason, an analyst with Stifel Nicolaus. Mason says that while a lot of investors are speculating that American Capital will take the same route as Allied Capital, he cautions that the conditions affecting the companies are different. American Capital, which was removed from the Standard & Poor’s 500 index in February, had breached its covenants and was selling assets at distressed prices to raise cash.
American Capital did not respond to queries seeking comment.
Last month, New York-based
A longer version of this story appeared last week in Buyouts, an affiliate publication of PE Week.