Gladstone Investment Books a New Portfolio Company

| About: Gladstone Investment (GAIN)

We do not comment on every press release from a Business Development Company announcing a new investment because most individual deals don’t move the needle of performance very much. Also, we often don’t have much extra light to shed besides what the press release trumpets. However, Gladstone Investment’s (NASDAQ:GAIN) announcement today that it has invested $25mn in Venyu Solutions is worth a little discussion.

Copying shamelessly from the press release we can tell you that Venyu, headquartered in Baton Rouge, Louisiana, is a leader in commercial-grade, customizable solutions for data protection, data hosting, and disaster recovery. For more information on Venyu, please go to The transaction appears to have been a buy-out and was undertaken in conjunction with management and Boston-based private equity group Madison Parker Capital. Gladstone Investment has provided both subordinated debt and equity, but we don’t know proportions or terms, or if there was any senior debt financing. Madison Parker’s own press release does not tell us much more.

For Gladstone, though, the $25mn invested-whatever the form-is a material transaction. The Company’s strategy is to maintain a very select portfolio of companies in which GAIN retains a substantial equity stake for both current income and eventual long term capital gains. As of the last quarter, the total portfolio consisted of just 15 companies and 3 of those are stand alone senior loans that are not part of the long term strategy. With the Venyu deal, GAIN’s core portfolio increases from 12 to 13 investments. After the recent sale of portfolio company (and first successful disposition) of A.Stucki a few months ago for $21mn in proceeds (see our article of June 30, 2010 for a refresher), total investment assets at cost were down to $185mn. This new deal will increase investment assets by nearly 15% at one fell swoop, and use up some of $44mn free cash sitting on the balance sheet at June 30, 2010 (net of a $75mn short term loan liability). GAIN will still have plenty of spending power, with cash on the balance sheet and plenty of availability under its $50mn Revolver.

For Gladstone Investment there have always two inter-locking challenges (see the BDC Reporter of May 26, 2010 when we indicated that GAIN sorely needed to book some new deals): finding worthwhile long term loan/equity investments at the right price and arranging appropriate medium term financing for these investments. Today’s news suggests management is beginning to find new deals to book as the buy-out market thaws out. This is coming in the nick of time for earnings because with the A. Stucki sale both recurring interest income and fee income associated with the sale (which buoyed last quarter's earnings) will be down materially. The Venyu deal will boost earnings in the quarter underway. We’re still waiting (at the upcoming quarterly Conference Call) to see if GAIN has managed to find any financing besides its current $50mn Revolver, which expires in 18 months (with a 1 year tail repayment period if not renewed).

Disclosure: No position in GAIN