Allied Capital concludes investment agreement with Goldman Sachs Private Equity

Goldman Sachs will purchase USD170m in existing private equity and debt investments from Allied Capital and will have future opportunities to invest in Allied affiliates and co-invest alongside the firm in the future.

As part of its agreement with Goldman, Allied Capital has agreed to sell a pro-rata strip of private equity and debt investments to Agile Fund I, a new Allied-managed fund in which Goldman Sachs owns most of the interests, for a total transaction value of USD170m.

Allied is expected to realise a net gain and dividend income from the sale of its investments of approximately USD15m. The purchase price of the equity investments represented a 9 per cent premium to Allied’s fair value for the investments at the end of September.

The majority of the pro-rata equity and debt sale closed simultaneously with the execution of the investment agreement. The sales of the remaining assets are expected to close by the end of the first quarter of this year.

Says Allied chairman and chief executive Bill Walton: ‘Over the past year Allied Capital has launched two key initiatives, the Unitranche Fund with GE Commercial Finance, and the Allied Capital Senior Debt Fund, to expand our reach into middle market private equity investing and to diversify our managed capital to include both public and private sources of capital.

‘Our investment agreement with Goldman Sachs furthers both of these goals. We look forward to enhancing our business opportunities with this very seasoned and experienced investment partner.’

Allied is selling to Agile 13.7 per cent of its equity investments in 23 of its buyout portfolio companies and 36 of its minority equity portfolio companies for a total of USD109m. It is selling around USD60m in debt investments at cost, representing 7.3 per cent of its unitranche, second lien and subordinated debt investments in the 23 buy-out investments included in the equity sale.

Allied will act as the managing member of Agile, and will be entitled to an incentive allocation subject to performance benchmarks. Allied owns the remaining interests in Agile not held by Goldman.

Allied Capital has also agreed to sell 11 venture capital and private equity limited partnership investments to Goldman for around USD28m, on which it expects to realise a loss of about USD3m. Goldman will assume the USD6.5m of unfunded commitments related to these investments. These sales are expected to be completed by May.

‘This transaction is the first step in a strategic relationship with the team from Allied,’ says Harold Hope, a managing director with Goldman Sachs Private Equity Group. ‘We believe our two firms share a similar culture and investment philosophy, and that this transaction should create collective opportunities to invest capital at attractive returns.

‘Throughout our extensive due diligence process, we have confirmed our view that Allied has the results, investment acumen, processes and controls that we look for in our investment partners.’

John Fruehwirth, a managing director at Allied, says: ‘Allied Capital has been able to develop both public and private sources of capital, including sources of managed private capital such as the investment commitments included in this agreement with Goldman Sachs, our recently launched Unitranche Fund with GE Commercial Finance, and the Allied Capital Senior Debt Fund.

‘In this market, we believe we will have the opportunity to deploy capital at attractive return levels and that leverage has returned to reasonable levels, coupons are higher and covenants are strong.’

Founded in 1958 and operating as a public company since 1960, Allied provides long-term debt and equity capital for management and sponsor-led buyouts, and for recapitalisations, acquisitions and growth of middle-market US companies. Its financing capabilities include first and second lien senior loans, unitranche debt, junior or subordinated debt and equity. At the end of September, its private finance portfolio included investments in 110 companies currently generating more than USD13bn in revenues and with more than 90,000 employees.

The Goldman Sachs Private Equity Group manages more than USD24bn in committed capital, investing in private equity funds, co-investing in direct investments, and providing liquidity and capital solutions to private equity limited partners and general partners. It is part of Goldman Sachs Asset Management, which had assets of USD868bn under management at the end of November.