MidCap Financial to Be Acquired by Ares Capital in $10.88-a-Share Deal

What happened

MidCap Financial Investment Corporation, a Maryland corporation listed on Nasdaq under the ticker MFIC, said in an SEC filing that on October 26, 2026 it entered into an Agreement and Plan of Merger with Ares Capital Corporation (ARCC) and two Ares acquisition subsidiaries.

Under the terms described in the filing, each MFIC share will convert into the right to receive $1.21 in cash and a number of ARCC shares determined by an exchange ratio. Based on the terms of the merger agreement as of its date, the filing says the total consideration represents $10.88 per fully diluted MFIC share, consisting of about $1.21 in cash and about $9.67 in ARCC stock.

MFIC shares closed at $10.26 on October 27, up 22.73% from the prior close of $8.36, according to the price data. Volume was 7,922,668 shares, about 13.5 times the average volume of 585,533.

The filing states that MFIC's board, acting on the recommendation of a special committee of disinterested directors, unanimously approved the merger agreement, and that ARCC's board also unanimously approved it. Apollo affiliates that together beneficially own about 5.2% of MFIC shares signed voting agreements to support the deal.

The companies said closing is currently anticipated in the first half of calendar year 2027, subject to conditions including approval by MFIC stockholders.

The terms in detail

MFIC shareholders will not receive a fixed number of Ares shares. The exchange ratio is set shortly before closing, based on Ares' net asset value per share and the closing price of Ares stock on a date at least 48 hours before the effective time. The formula has three tiers: if Ares trades at or below its net asset value, the ratio is $9.67 (less any post-signing tax dividend) divided by net asset value; if it trades between 100% and 104.5% of net asset value, shareholders receive partial credit for that premium; above 104.5%, the ratio is capped.

Before closing, MFIC will declare one or more dividends to distribute all of its undistributed investment company taxable income and net capital gains, so that it keeps its status as a regulated investment company under the tax code. Any such dividend declared after signing reduces the stock portion of the consideration.

The merger agreement can be terminated by either side if the first merger is not completed within nine months, subject to a possible three-month extension. MFIC would owe Ares a $31,360,000 termination fee under certain specified circumstances. MFIC has also agreed to suspend its share repurchase program.

What this means

The filing is a Form 425, which companies file when they are communicating about a merger or acquisition. The form exists so that investors see deal-related statements in an official SEC document; the same filing was also submitted as a Form 8-K current report.

MidCap Financial Investment Corp is a business development company, a type of closed-end investment firm that lends to middle-market businesses and must distribute most of its taxable income to shareholders to keep its regulated investment company, or RIC, tax status. Ares Capital is also a business development company and is one of the largest in the sector. The deal would fold MFIC into Ares as a wholly-owned subsidiary through a two-step merger: first an Ares subsidiary merges into MFIC, then MFIC merges into a second Ares subsidiary.

The $1.21 cash portion is being paid by Ares Capital Management LLC, Ares' external investment adviser, according to the filing, rather than by Ares itself. The rest is paid in Ares stock, whose value to MFIC holders is not fixed until shortly before closing, which is why the filing describes $10.88 per share as the value as of the merger agreement's date.

The tax dividend requirement is a mechanical step, not a special payout. A RIC must distribute essentially all of its investment income and gains each year or owe corporate-level tax on what it retains; MFIC is declaring the dividends it needs to satisfy that rule before it is absorbed.

The next scheduled steps, per the filing, are a registration statement on Form N-14 for the Ares shares to be issued, a special meeting of MFIC stockholders to vote on the merger, and regulatory clearance under the Hart-Scott-Rodino antitrust waiting period. The filing does not say why the two companies decided to combine.