Sierra Income Corp. is set to become the seventh-largest publicly traded business development company with its recently announced bid to acquire Medley Capital Corp. and Medley Management Inc.
Expected to close by early 2019 at the latest, the deal will fold Medley Capital into Sierra Income, a nontraded BDC. It plans to list on the New York Stock Exchange when the deal closes. Asset management company Medley Management will operate as a wholly owned subsidiary of the combined company. The merger is expected to result in cost synergies of at least $5 million.
The combined company will operate with more than $5 billion in assets under management, $2 billion in assets on its balance sheet and more than $1.1 billion of net asset value, Medley Capital Chairman, President and CEO Brook Taube said Aug. 10 on a conference call with analysts. That size will also make Sierra Income the second-largest internally managed BDC.
"The increased size and diversification has the potential to provide broader access to financing markets and the potential to lower financing costs over time," Taube said on the call.
BDCs are a form of closed-end funds that invest heavily in small and medium-sized, early-stage companies, as well as financially troubled businesses. These companies, which rely on both debt and equity to finance their transactions, were granted a legislative win in March when lawmakers passed legislation that lowered the required ratio of assets to debt from 200% to 150%.
By adding Medley into its operations, Sierra Income will have additional financing opportunities in the future, Taube said. The company plans to release further information about its portfolio structure in its proxy statements, he said.
The deal will also add liquidity for existing shareholders as Sierra Income will become publicly traded on the New York Stock Exchange once the deal closes. That improved liquidity is expected to be accretive to Medley Capital and Sierra Income's net investment incomes, Taube said.