Ares Management – Company Profile

Mezzanine financing company overview

Mezzanine firm logo:

Ares Management - mezzanine financing company logo

Headquarters location:

United States

Typical mezzanine financing range:

$30 - $500 million

Geographic focus:

United States, Europe, Asia, Australia

Industry focus:

Industry agnostic. Highly attractive sectors include: Consumer products, Distribution, Education, Food and beverage, Healthcare services, Information technology services, Light manufacturing. Additionally, they are experienced/have expertise investing in certain cyclical industries including: Restaurants, Retail, Technology, Oil and gas.

Company profile

Company history overview

In 1997, Ares was founded by a veteran team of investment professionals to pursue investment activities in leveraged loans, high yield bonds, private debt, private equity and other types of investments. After becoming an independent firm in 2002, the Firm raised its first dedicated private equity and private debt funds in 2003 and 2004, respectively. The development of their Private Equity and Direct Lending Groups significantly benefited from their senior professionals’ deep middle market experience and the reputation of their Tradable Credit Group in the investment community. In 2004, Ares Private Debt group created a specialty finance company, Ares Capital Corporation (“ARCC”) for corporate lending activities (NASDAQ: ARCC), which is now the largest business development company by market capitalization and total assets.

From 2007-2009, Ares significantly expanded, investing heavily in back office infrastructure, seeding new investment products and entering Europe with capital markets and private debt investing activities. In 2010, ARCC acquired Allied Capital, creating the largest business development company by market capitalization. The Private Equity Group expanded into Asia in 2010 with the launch of its first China growth fund. Ares continued its regional expansion and product diversification in 2011 with the strategic additions of Indicus Advisors, a top tier investment manager in European leveraged finance and global structured corporate credit, and Wrightwood, a provider of debt capital to the U.S. commercial real estate sector.

More recently, Ares has continued to expand and scale its product offerings. Ares became a publicly traded partnership in May 2014. Its common units trade on the New York Stock Exchange under the ticker symbol “ARES”.

Real Estate Expansion

In 2012, Ares Real Estate Group formed a specialty finance company, Ares Commercial Real Estate Corporation (“ACRE”) , a real estate investment trust (REIT) to provide one-stop solutions to meet the distinct and underserved financing needs of middle-market commercial real estate (NYSE:ACRE). Ares further enhanced its Real Estate Group in 2013 with the strategic acquisition of AREA Property Partners, L.P. (“AREA”) , a top-tier real estate investment management firm with a 20-year track record and 50 investment professionals in the U.S. and Europe. In September 2013, ACRE closed its acquisition of EF&A Funding, L.L.C., d/b/a Alliant Capital LLC, a financial services company focused on originating and servicing multi-family loans for various Government and Government-Sponsored Entities.

Direct Lending Expansion

In June 2014, Ares Direct Lending Group expanded into commercial finance and asset-based lending through the acquisition of Keltic Financial Services LLC and Keltic Financial Partners II, LP.

Private Equity Expansion

Ares expanded its Private Equity Group in January 2015 with the strategic acquisition of Energy Investors Funds (“EIF”), a leading asset manager in the U.S. power and energy industry. Ares’ Private Equity EIF Group focuses on generating long-term, stable cash-flowing investments in the power generation, transmission and midstream energy sector.

Investment philosophy/criteria

The Ares European Direct Lending Group primarily focuses on companies in defensive industries with high free cash flow. The team pursues a multi-channel origination strategy designed to uncover the best and broadest set of investment opportunities, sourcing deals directly from financial sponsors, companies, management teams, and commercial and investment banks. This multi-source origination strategy allows for greater asset selectivity and better long-term credit decisions.

Ares Capital Corporation’s (“Ares Capital” or “ARCC”) investment professionals are industry and product generalists who are able to invest in a range of industries -principally targeting companies with a history of stable cash flows, demonstrated competitive advantages and experienced management teams. In addition, they place a high priority on market-leading companies with identifiable growth prospects that can generate significant free cash flow.

Highly attractive sectors for Ares include:

  • Consumer products
  • Distribution
  • Education
  • Food and beverage
  • Healthcare services
  • Information technology services
  • Light manufacturing

Additionally, they are experienced/have expertise investing in certain cyclical industries including:

  • Restaurants
  • Retail
  • Technology
  • Oil and gas

The firm’s project finance product focus is on financing long lived assets that generate electricity or provide other essential services, including:

  • Power generation projects
  • Energy efficiency projects
  • Energy services

Attractive sectors for their venture finance focus include:

  • Communications
  • Information technology and services
  • Semiconductor
  • Electronics
  • Clean and alternative energy
  • Life sciences

As a long-term and value-oriented investor, they analyze each investment with a primary focus on minimizing downside risk, protecting invested principal and generating an appropriate risk-adjusted return.

Ares’ investment strategy relies heavily on:

  • Intensive due diligence
  • Structuring expertise
  • Disciplined underwriting
  • Active portfolio management

The firm prefers to agent and/or lead the transactions in which they invest. They also seek board representation or access as appropriate in order to enhance their ability to achieve their investment strategy and to be a more value-added partner for their portfolio companies. They believe this approach enables them to identify attractive investment opportunities throughout economic cycles and across a company’s capital structure so they can make investments consistent with their stated investment objective and preserve principal while seeking appropriate risk adjusted returns. They also selectively consider third-party-led senior and subordinated debt financings, review portfolio purchases and opportunistically consider the purchase of stressed and discounted debt positions.

Target level of commitment/investment:

  • $30 – $500 million (Corporate)
  • $10 – $200 million (Project Finance/Power Generation)
  • $1 – $25 million (Venture Finance)

Characteristics of a target portfolio company:

  • EBITDA Range of $10 – $250 million (Corporate only)
  • Market leading business
  • Defensive industry orientation
  • Consistent performance
  • Entrenched positions with diverse customer base
  • Demonstrated competitive advantages
  • Strong free cash flow generation and growth
  • High return on invested capital
  • Experienced management team with strong financial commitment
  • Alignment with management team and equity sponsors
  • Quality institutional investor support

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