Allied Capital
| Company type | Public |
|---|---|
| Industry | Private equity |
| Founded | 1958 |
| Defunct | April 1, 2010 |
| Fate | Acquired by Ares Capital |
| Headquarters | Washington, DC , United States |
Area served | United States |
| Products | Debt and equity financing for leveraged buyouts, acquisitions, and corporate restructurings |
Allied Capital was a private equity investment company and mezzanine capital provider that offered both debt and equity financing for leveraged buyouts, acquisitions, and corporate restructurings of well-established enterprises. Functioning as a publicly traded private equity firm under the Business Development Company (BDC) structure, Allied ranked among the largest entities in this category. The firm's main headquarters were located in Washington, DC, with additional offices situated in New York City.
The firm concentrated its investments on middle-market firms spanning several industries, including business services, financial services, consumer goods, industrial manufacturing, healthcare, retail, and energy.
In 2010, Allied Capital was acquired by Ares Capital.
History
Established in 1958, Allied Capital went public through an initial public offering on the over-the-counter (OTC) market in 1960.
In February 1997, David Gladstone stepped down from his roles as Chairman and CEO.
By 2001, the company’s shares were traded on the New York Stock Exchange and had gained recognition for maintaining a consistently strong dividend yield.
Allied and Short Sellers
From 2002 until 2008, David Einhorn, the manager of Greenlight Capital, engaged extensively in short selling Allied’s stock while disputing the company’s valuation methods for illiquid assets. This confrontation resulted in a highly publicized dispute and attracted regulatory attention.
Allied openly condemned Einhorn's strategies beginning in 2003. The Securities and Exchange Commission (SEC) examined whether Einhorn’s public comments were intended to manipulate the price of Allied’s shares.
In 2004, Allied encountered heightened regulatory investigation concerning its lending operations.
By mid-2007, the SEC determined that Allied had breached securities regulations related to accounting practices and valuation of illiquid securities but resolved the matter through a settlement that did not involve monetary penalties or an admission of guilt.
In 2008, Einhorn released Fooling Some of the People All of the Time, articulating his criticisms of Allied’s accounting approaches and portraying the company as operating similarly to a ponzi scheme by overstating loan valuations and subsidiary worth to sustain investor trust.
During that same year, Allied faced wider scrutiny due to its aggressive accounting techniques affecting reported financial results.
The 2007-2009 Credit Crunch
Amid the credit market downturn of 2007, Allied Capital initially demonstrated considerable stability. In January 2008, the company executed a structured secondary transaction alongside Goldman Sachs, establishing AGILE Fund I, LLC to purchase $170 million worth of private equity and mezzanine capital interests from Allied, which accounted for 13.7% of its equity holdings. Goldman Sachs also pledged $125 million for investment in future funds managed by Allied. Furthermore, Allied divested a collection of venture capital and private equity fund stakes.
Nonetheless, on September 30, 2008, Allied’s stock value plummeted by more than 50% following the bankruptcy filing of Ciena Capital, a company within its portfolio.
Sale to Ares Capital
Towards the end of 2009, Allied agreed to be acquired by Ares Capital. Although Prospect Capital put forward a rival offer in early 2010, Allied’s management declined it. The acquisition received shareholder approval on March 26, 2010, and was completed on April 1, with Allied shares closing at $5 each.