Sierra Income Corp. BDC Plans to Merge with traded BDC after NAV Declines
According to a press release on September 21, Sierra Income Corporation and Barings BDC Inc. (NYSE: BBDC) announced a definitive merger agreement under which Sierra will reportedly merge with and into Barings BDC. The combined company, which will remain externally managed by Barings LLC, is expected to have approximately $2.2 billion of investments on a pro forma basis. The boards of directors of both companies have unanimously approved the merger, which is currently expected to close in the first quarter of 2022.
Sierra stockholders will reportedly receive aggregate consideration in the form of cash and stock consideration valued at approximately $623.7 million based on Barings BDC’s June 30, 2021 net asset value of $11.39 per share and representing total book value consideration of $6.10 per fully diluted Sierra share, according to the terms of the agreement.
On a market value basis, based on the closing price of Barings BDC common stock on September 20, 2021, the Transaction represents total consideration for Sierra stockholders of approximately $588.6 million or approximately $5.76 per Sierra share, representing a premium of 6.1% to Sierra’s NAV as of June 30, 2021, according to the press release.
Sierra’s stockholders will receive 0.44973 shares of Barings BDC common stock for each share of Sierra common stock, resulting in approximately 46.0 million newly issued Barings BDC shares, having a total value of approximately $523.7 million, or $5.12 per fully diluted Sierra share, based on Barings BDC’s June 30, 2021 NAV of $11.39 per share.
In addition, Barings LLC will pay $100 million in cash, or approximately $0.98 per share, directly to Sierra stockholders at closing. Following the Transaction, Barings BDC’s pro forma equity base is expected to be approximately $1.3 billion and Barings BDC stockholders and Sierra stockholders are expected to own approximately 58.7% and 41.3%, respectively, of the combined company.
How Does a Merger Affect Shareholders?
Companies often merge as part of a strategic effort to boost shareholder value, often by creating new business lines and/or gaining greater market share. However, the economic environment at the time of the merger, size of the companies and management of the merger process all play a part in future returns for shareholders.
Shareholders may experience a significant loss of voting power, and while the spike in trading volume tends to inflate share prices, if economic conditions are not favorable at the time of the merger, shareholders may see significant losses.
Complex, High-Risk Alternative Investments
The White Law Group continues to investigate potential claims involving broker dealers who may have unsuitably recommended high risk Business Development companies (BDCs) such as Sierra Income Corporation to unsuspecting investors. The firm has received numerous calls from investors looking to recover financial losses from investments in BDCs like Sierra.
The high commission structure of these products leads to the possibility that unscrupulous financial advisors will push these products unsuitably to maximize their own commissions.
Brokerage firms are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor in light of that particular investor’s age, investment experience, net worth, risk tolerance, investment objectives, and income.
Firms that fail to perform adequate due diligence or that make unsuitable recommendations can be held responsible for investment losses in a FINRA arbitration claim.
Sierra Income Corp. Declining NAV
The company’s current Net Asset Value continues to decline at $5.28 per share as of March 31, 2021. Shares of Sierra Income Corp recently sold on Central Trade and Transfer, a secondary market for alternative investments, for just $2.06 per share. This may signify big losses for investors since the original offering price was $10 per share.
On May 27, 2021, Sierra Income Corporation announced that its Board of Directors has entered into a formal review process to evaluate strategic alternatives for the Company, and authorized a Special Committee to lead the process, according to a press release. The Special Committee has engaged Broadhaven Capital Partners as its financial advisor.
Disappointing Distribution Rate
In August the company elected to extend the suspension of distributions through September 30, 2020, claiming the suspension was in the best interest of the shareholders “during this volatile economic environment.”
In April, the company then announced that, on April 28, 2021, its Board of Directors declared a series of paltry monthly distributions for April, May, and June 2021 of just $0.010 per share. The company also authorized a limited share repurchase program, equal to $5.28, which represents the Company’s net asset value per share as of March 31, 2021.
Failed Merger Plans
This is apparently the second attempt for a merger for Sierra Income. In May 2020, the company announced that its Board of Directors terminated its previously announced mergers with Medley Capital Corporation (“MCC”) and Medley Management Inc. (“MDLY”).
Sierra noted that changes were due to the relative valuations of the Company, MCC, and MDLY, and the “unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing in a timely manner,” according to a press release.
Potential to Recover Financial Losses
If you suffered losses investing in a Sierra Income Corporation with your financial advisor, please call the securities attorneys of The White Law Group at 888-637-5510 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington. The firm represents investors in FINRA arbitration claims throughout the country. For more information on the firm, visit https://www.whitesecuritieslaw.com.