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Main Street Capital: Sells Portfolio Company For Gain

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NEWS

The BDC sold its interest in Hydratec, Inc. for an announced Realized Gain of $7.9mn and at the valuation on the books at 12/31/2017.

The BDC has been involved with the company since 2007.


ANALYSIS

By using Advantage Data’s extensive records, we see that MAIN’s initial debt and equity investment was pared down to a $7mn equity stake only since IIIQ 2013.

The value of the common stock has consistently been carried at or close to the $15mn which the BDC received for several years.

By the way, Hydratec Inc. develops software for the sprinkler industry and is headquartered in that hotbed of tech innovation: New Hampshire.


VIEWS

For MAIN, this is yet another feather in its lower middle market lending and investing cap, and comes after a series of Realized Losses last year. Investors should expect both Winners and Losers from MAIN’s investing in both the debt and equity of smaller companies but the track record does suggest that the former will outstrip the latter over the long haul. On the other hand, we must remember that market conditions have been favorable to selling small companies for nearly a decade. Historical experience suggests a recession will result in much lower valuations, higher credit losses and far fewer exits. Till then MAIN is making hay – and booking material net gains – while the sun shines.

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