Ares Management is set to acquire MidCap Financial Investment Corp. (MFIC), a $2.5 billion publicly traded business-development company, from Apollo Global Management in a deal expected to close in the first half of 2027. The transaction will be financed through a combination of cash from Ares Management and shares from Ares Capital Corp., Ares’s publicly traded private-credit fund.

Under the terms of the agreement, MFIC shareholders are projected to hold approximately 5% of the combined entity once the acquisition is complete. Apollo initially offered MFIC for sale earlier this year amid heightened concerns about rising default risks, which triggered significant selloffs in private-credit funds largely owned by individual investors.

MFIC primarily holds loans originated by MidCap Financial, a larger corporate lending platform that Apollo intends to retain post-transaction. The fund has experienced underwhelming performance in recent periods, and its market price has dropped sharply, trading at roughly a 40% discount to its net asset value (NAV) as calculated by Apollo. Data from CEF Advisors indicates the market has discounted MFIC’s shares substantially compared to the underlying loan values.

Ares Capital has agreed to pay $10.88 per MFIC share, representing a 30% premium over the closing price on the last trading day before the announcement but approximately 15% below MFIC’s net asset value as of September 30. With assets totaling around $29 billion, Ares Capital ranks among the world’s largest private-credit funds.

Business-development companies like MFIC are popular among individual investors seeking stable income streams, as these vehicles generally distribute the majority of their earnings as dividends. The acquisition positions Ares to expand its footprint in the private credit space, broadening exposure to loans issued to middle-market companies.

Apollo’s decision to divest MFIC follows market volatility impacting the private credit sector, especially funds geared toward retail investors. By contrast, Ares Management, a leading competitor in this space, is leveraging the acquisition to consolidate its market presence and potentially enhance returns through operational integration and scale.