American Capital Share Repurchases and Cambridge Major Laboratories Buyout

Two positive news releases from our holding American Capital Ltd:

American Capital Share Repurchases:

American Capital announced on December 27, 2012 that in the fourth quarter of 2012 it made open market repurchases of 8.8 million shares of American Capital common stock or 2.8% of the outstanding shares.  At an average price of $11.72/share totaling $103 million the purchases were made at a 33% discount to the current book value of $17.39/share.

Since the third quarter of 2011, American Capital has repurchased 52.4 million shares, or 15.2% of the outstanding shares at an average price of $9.46 per share, totaling $495.3 million and at a 46% discount to the current book value. Although the discount has been reduced from the average of 46% to about 33% it remains an outstanding allocation of capital on behalf of shareholders.

We continue to argue that ACAS’s management knows ACAS better than any prospective company out there making this a low risk high return opportunity. By paying a price of $1.00 for every $1.49 of productive assets it will generate future outsized returns. For example; ACAS’s average return on equity for years 2010 and 2011 was about 28%/year. Buying shares with a 28% return on equity at a 33% discount will generate a future return in excess of 41%/year for remaining shareholders all other things equal.

Share Repurchase Return

How many opportunities in today’s 1.8% return 10 year bond market do we have that can generate this potential return? I don’t know of many.

Cambridge Major Laboratories Buyout:

American Capital also announced a commitment of $212 million buyout of Cambridge Major Laboratories. This further broadens American Capital and its affiliated funds’ investments in over 540 portfolio companies both directly and in support of leading financial partners in change of control transactions.

ACAS Diversification 2Q12

Source: ACAS Corporate Presentation 2Q12

BETHESDA, Md., Dec. 27, 2012 /PRNewswire/ — American Capital, Ltd. (Nasdaq: ACAS) (“American Capital”) announced today that it has committed $212 million in the One Stop Buyout® of Cambridge Major Laboratories, Inc. (“CML” or the “Company”), a leading global provider of complex chemistry-based outsourcing services to the pharmaceutical and biotechnology industries. CML expands American Capital’s portfolio of healthcare products and services companies, which have aggregate revenues of over $600 million1. American Capital’s investment took the form of debt and preferred and common equity. Jefferies & Company, Inc., served as sole financial advisor to CML on the transaction. CML was a portfolio company of Arlington Capital Partners prior to American Capital’s investment.

Based in Germantown, WI, CML is an active pharmaceutical ingredient (“API”) development and manufacturing organization serving a broad customer base of pharmaceutical, biotech and generic drug companies. The Company operates from FDA inspected facilities in the U.S. and Europe. In 2012, the Company developed and supplied over 100 APIs for drugs in the early and mid-stages of development and 14 APIs for drugs that are commercially available. The products CML manufactures span a wide range of therapeutic categories from cancer to neurology to rare genetic diseases.

“CML has experienced substantial growth since inception due to the Company’s continued expansion of its service offerings, operations and facilities,” said Kyle Bradford, Principal, American Capital Buyouts Group. “As a result, CML is now a market leader across the entire spectrum of drug development and commercialization, providing services and products to customers with early-stage, late-stage and commercial compounds. The Company’s market position, complex chemistry abilities, outstanding execution of its service offerings and large state-of-the-art facilities, both in the U.S. and Europe, will allow CML to continue to meet the increased outsourcing demand from pharmaceutical and biotech companies. We look forward to working with CML’s management team to substantially grow the Company, both organically and through acquisitions.”

“CML’s management team has significant experience and expertise in the chemistry research, manufacturing and pharmaceutical industries in addition to an impressive track record of delivering sustainable growth,” said Ryan Nagim, Vice President, American Capital Buyouts Group. “American Capital is pleased to work with CML’s seasoned management team in the next phase of the Company’s growth.”

Slow and Steady Wins the Race!


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