One of the biggest corporate news this week was reports that Scott Kapnick, the former head of Goldman Sachs investment bank, was considering options for his HPS Investment Partners.
There are three likely strategies, including an outright sale, an initial public offering, or selling a stake. Most analysts believe that Kapnick will opt to sell the company, probably to Blackrock, the biggest asset manager in the world that has a limited exposure to the private credit industry.
There are also signs that other large asset management companies like T.Rowe Price and Franklin Resources may decide to make a bid for the company. Still, in case of a bidding war, chances are that Blackrock will prevail.
A sale at a higher valuation of HPS Investment will likely lead to more interest in other large players in the private credit industry, a sector that has become pivotal on Wall Street. Its growth has supercharged most players in the industry like Apollo Global and Blue Owl into the best-performing companies in the stock market this year.
A sale of HPS Investment will likely benefit other companies in the industry, which could become acquisition targets. One of these firms is Golub Capital, a company with over $70 billion. Golub Capital also manages Golub Capital BDC (GBDC), a firm valued at over $4 billion.
What is Golub Capital BDC?
Golub Capital BDC is a company that provides financing to midmarket companies or those with annual EBITDA of less than $100 million. Its financing is in the form of first and second lien loans, which are the most secure type of loans.
The company achieves its investment goals by accessing loan origination channels from Golub Capital and then selecting quality middle market companies. In most periods, it enters deals by partnering with other private equity and sponsors. The company typically invests between $10 million and $80 million.
The private lending industry has done well in the past few years, helped by rising interest rates in the US. Most importantly, tighter regulations in the banking sector has pushed many large banks out of the industry. Instead, these firms mostly focus on large deals by investment grade companies.
Golub Capital BDC also benefit from the way they are taxed. Unlike other companies, it is a BDC that is not taxed at the corporate level as long as it distributes at least 90% of its taxable income to shareholders. Also, it must invest at least 70% of its assets in qualifying companies. As a result, many investors allocate cash to the company because of its reliable dividends.
Read more: BDC vs REIT vs MLP: Best SWAN stocks to buy as rates rise?
Golub Capital portfolio
Golub Capital has an investment portfolio of $7.8 billion and has made over 380 investments. Most of its investments, or 93% are first lien followed by junior debt and equity. Another notable thing is that 99% of its loans are floating, meaning that it makes more money when rates are rising.
Golub Capital BDC’s portfolio is highly diversified, with most of its companies being in the software industry. The rest are in the healthcare providers, specialty retail, insurance, diversified consumer services, and automobiles.
The most recent financial results shows that Golub Capital’s business did well last quarter, helped by higher rates and its compensation approach in the form of management fee and inventive fees.
The challenge, however, is that the Federal Reserve will likely continue cutting interest rates in the next few meetings. While Golub benefited from high interest rates, there are chances that it will suffer when they start moving downwards.
A key element that could benefit the company is a potential acquisition by a large asset manager as demand for private credit rises.
Most people invest in Golub because of its high dividend yield. Data shows that the company yields about 11%, which is much higher than what other dividend investments like the JPMorgan Premium Equity (JEPI), Schwab US Dividend Equity (SCHD), and Global X NASDDAQ 100 Covered Call ETF.
Golub Capital is also yielding more than the short and long-term US government bonds, which have about 4% yield.
Read more: Are dividend ETFs like QYLD, XYLD, and SPYI worth it?
Golub Capital stock technicals
Golub Capital chart by TradingView
The daily chart shows that the GBDC stock price has done well in the past few weeks. It has jumped from $13.60 in August to $15.50, its highest point since June 4.
Golub has rallied above the 23.6% Fibonacci Retracement level and the 50-day and 100-day Exponential Moving Averages (EMA).
Additionally, the Relative Strength Index (RSI) is nearing the overbought point of 70, while the MACD indicator has moved above the neutral point. Therefore, the path of the least resistance for the stock is bullish, with the next point to watch being at $16.70, its highest point this year.
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