Monday, investment company Prospect Capital Corporation (PSEC) said it has signed a definitive deal to acquire finance company Patriot Capital Funding, Inc. (PCAP) for $197 million. The transaction, unanimously approved by both of Prospect's and Patriot's Board, is expected to close in the next 60 days.
Prospect noted that Patriot shareholders will own 15% of Prospect's outstanding shares pro forma for the purchase, so the approval of Prospect shareholders is not required.
New York-based Prospect said that the acquisition is for 63% of asset cost, 75% of asset book value, and 54% of equity book value. Prospect's purchase price translates into $0.54 on dollar for equity portion.
The purchase price includes cash to repay all of Westport, Connecticut-based Patriot's debt, anticipated to be $110.5 million with the closure of the acquisition, and Prospect shares exchanged at a ratio of nearly 0.3992 Prospect shares for each Patriot share, or 8,616,467 Prospect shares for 21,584,251 Patriot shares, with such exchange ratio decreased by any tax distributions Patriot may declare before closing.
Prospect anticipates the Prospect shares issued to generate $0.64 per share per quarter of net investment income, which would be accretive to Prospect at $0.10 per share per quarter across all Prospect shares pro forma for the acquisition.
Prospect's acquisition pays off Patriot's existing debt, enabling a premium to Patriot share price as well as a discount to Patriot net asset value, which unlocks value for mutual shareholder benefit.
With the acquisition, Prospect's gross assets would rise by over 35% and equity capitalization increases by over 14% without incurring underwriting costs related to stock offering.
PSEC is currently trading at $10.02 per share, down 0.1%, on the Nasdaq.
PCAP is currently trading at $3.61 per share, up 85.22%, on the Nasdaq.
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