Apollo, Ares and Mitsubishi Sign NDA Agreements for GE Capital Sponsor Finance

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General Electric (NYSE: GE) has reportedly distributed nondisclosure agreements (NDAs) to one dozen potential bidders of GE Capital Sponsor Finance, which makes to loans to private equity-backed companies and includes the coveted GE Antares unit. According to peHub, which first reported the news, companies that have signed NDAs include: Apollo Management, Ares Management and Mitsubishi UFJ Financial Group Inc. GE Capital Sponsor Finance is expected to sell within 90 days.

GE Capital Sponsor Finance -- which, in addition to Antares includes TMT, GE Equity and the Bank Loan Group -- has long played a powerful role in middle-market dealmaking. The largest lender in the space by a wide margin, it accounts for about 25 percent of all loans made to companies with revenues between $25 million and $500 million. GE Capital has won Mergers & Acquisitions M&A Mid-Market Lender of the Year award twice – first for 2010 and most recently for 2014. 

Like many of today’s middle-market firms, GE Capital Sponsor Finance traces many of its roots back to Heller Financial, the Chicago-based finance firm that rose to prominence in the '80s and '90s by focusing exclusively on the middle market. Heller Financial was born in 1985, out of the phoenix's ashes of Walter E. Heller, which had been founded in 1919 and was acquired by Fuji Bank in 1984. Fuji poached a pair of executives from GE, Norm Blake and Bob Koe, to run the new firm, christened Heller Financial. Blake and Koe quickly changed the firm's focus from a leasing and asset-based commercial real estate lending company to a broader lending institution to serve the middle market -- which was becoming increasingly important to the private equity community as middle-market firms and divisions started to sprout.

Heller developed a culture of nurturing talent. In 1996, a dozen Heller executives, including David Brackett, left to form their own firm, Antares Capital, which was backed by Mass Mutual Life Insurance Co. Both Heller and Antares thrived and became attractive targets in their own rights. GE Capital bought Heller in 2001 for $5.3 billion in cash. Then in 2005, GE Capital bought Antares. The Antares acquisition roughly doubled the size of GE Capital’s middle-market lending business at the time.

Today, Antares has about $14 billion in assets under management and is led by Brackett as CEO. It is considered the jewel in the crown of GE Capital Sponsor Finance.

Overall, interest in the Commercial Lending division has been very high since GE announced the sale of GE Capital on April 10. Commercial Lending consists of six units: GE Capital Corporate Finance, GE Capital Sponsor Finance, GE Capital Franchise Finance, GE Capital Healthcare Finance, GE Capital Equipment Finance and GE Capital Commercial Distribution Finance. (See related graphic). Many companies are reportedly vying for all or part of it. Among those said to be considering the whole Commercial Lending unit are: Apollo Global Management (NYSE: APO), Blackstone Group LP (NYSE: BX), Mitsubishi UFJ Financial Group Inc. (NYSE: MTU) and Wells Fargo & Co. (NYSE: WFC). Apollo and Ares are also reportedly considering buying the Sponsor Finance group separately, as is SunTrust Banks Inc. Some sources expect the Sponsor Finance group to sell within 90 days.

Meanwhile, one piece of GE Capital outside the Commercial Lending division already has buyers, with Blackstone and Wells Fargo snatching up real estate operations for about $26.5 billion. That deal was announced the same day GE said it would divest GE Capital to focus on its industrial business. GE has cited the successful initial public offering of its retail finance business, Synchrony Financial, as evidence that its financial services assets could be more valuable to others. The business model for large, wholesale-funded financial companies changed, and that would make it harder to generate acceptable returns going forward, says GE. The company also hopes the sale will free it from increased regulation by removing its designation as a Systemically Important Financial Institution (SIFI). Previously, GE said in March that it would sell its Australia and New Zealand consumer lending operation as part of a plan to reduce GE Capital's overall share of GE earnings.

--Mary Kathleen Flynn and Danielle Fugazy contributed to this report.

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