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Investcorp expands into direct lending with CMIP acquisition

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Alternative asset manager Investcorp is acquiring a majority interest in CM Investment Partners (CMIP) to expand into middle-market corporate lending.

The takeover of CMIP will allow Investcorp to enter the increasingly crowded field of private equity-led direct lending, and seed its expansion in the CLO market as well with new high-yielding middle-market portfolio offerings.

Michael Mauer and Christopher Jansen, CMIP’s co-chief investment officers, will maintain a minority ownership interest in CMIP, according to a press release issued Thursday.

According to the release, Investcorp is purchasing the majority equity holdings in CMIP from Cyrus Capital Partners and Stifel Venture Corp. CMIP is the investment advisory arm of CM Finance (Nasdaq: CMFN). In addition, Investcorp will invest in a minority share of the stock equity of CM Finance, through its Investcorp business development company (BDC) affiliate.

The transaction and the stock purchase have already been approved by CM Finance’s board of directors, and contingent on shareholder approval the deal is expected to close in the third quarter.

The press release stated CM Finance mostly invests in floating-rate loans (first-lien, second-lien and unitranche) of small and medium enterprise companies, as well as mezzanine loans and equity positions in middle-market companies with annual revenues of at least $50 million and earnings of a minimum $15 million.

“Investcorp’s acquisition of CMIP is a strategic milestone for us as we expand our credit product offerings by entering a new and dynamic segment of the U.S. market,” Mohammed Alardhi, executive chairman of Investcorp, said in the release.

“We are seeing significant opportunities in this space and we believe that this acquisition will enable us to broaden our footprint in the U.S. credit market and capitalize on these opportunities going forward,” added Rishi Kapoor, Co-CEO of Investcorp.

Mauer, CM Finance's chairman and chief executive, said CM’s niche specialty in middle-market lending “will be a strong complement to Investcorp’s existing capabilities and distinguished track record as a top-tier CLO manager and mid-market private equity investor.”

Firms such as the Carlyle Group, GSO/Blackstone and KKR have launched or acquired direct-lending operations in recent years, all of which have seeded collateral for new middle-market CLO platform. This year, six new managers (including KKR, through a partnership with FS Investments) have debuted in the middle-market space this year, according to Deutsche Bank.

In addition to FS KKR, Elmwood Asset Management, Audux Group, Birch Grove Capital, Owl Rock Capital Corp., THL Credit and PPM America (a subsidiary of Prudential) have launched first-time deals in 2019.

Middle-market CLO issuance was $7 billion year-to-date as of June 25, according to Deutsche Bank.

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