On Friday, American Capital Ltd. ( ACAS - Analyst Report ) announced the divesture of its portfolio company VP Acquisition Holdings Inc. (Value Plastics). The unit was acquired by Nordson Corporation ( NDSN - Snapshot Report ) in August 2011 for $250 million.

Previously, in July, NDSN entered into an agreement to acquire Value Plastics. Value Plastics designs and manufactures precision engineered, plastic molded, single-use fluid connection components used largely in vital flow control applications for healthcare and medical device markets.

Out of the proceeds, ACAS received $138 million and realized a gain of $93 million during the third quarter of 2011, subject to post-closing adjustments. Moreover, including investments by ACAS’s associated funds under management in Value Plastics, proceeds totaled $222 million and gain totaled $157 million for ACAS.

In October 2005, ACAS invested $89 million for recapitalization of Value Plastics in the form of senior term loans, senior and junior subordinated debt and common equity. The company also provided $5 million revolving credit facility.

Therefore, ACAS and its allied funds under management received total equity proceeds of $208 million, surpassing the original equity investment by $165 million. The proceeds also include dividends received since investment.

Moreover, ACAS earned 29% compounded annual rate of return over the life of its total investment, including interest, dividends and fees. The proceeds also exceeded second-quarter 2011 valuation of ACAS's investment by $33 million or 31%.

Prudent management team, market position, and outstanding financial performance boosted the Value Plastics investment. The success of the investment helped in selling it off at a very good price.

ACAS considers the deal as positive for the company and expects to continue to keenly seek new One-Stop Buyout opportunities of up to $300 million. The company will also look for lending opportunities from $10 million to $100 million.

Ohio-based Nordson Corporation is the leading producer of precision dispensing equipment, which applies adhesives, sealants, coatings and other materials to an extensive range of consumer and industrial products during manufacturing operations. The company is also a maker of equipment used in the testing and inspection of electronic components in addition to technology-based systems for remedial treatment processes.

Nordson's operational and financial support and Value Plastics’ successful innovation of fluid connection components will facilitate Value Plastics to further grow in the industry and maintain market share. Additionally, the acquisition will help Nordson in its strategic objective of building medical and life sciences platform while balancing its existing growing positions in biomaterial delivery devices and medical device assembly.

Moreover, through Value Plastics, Nordson will be aided in leveraging its business’ profitable growth globally apart from domestic markets and general industrial markets. Strategically, Value Plastics will work as part of Nordson’s global Advanced Technology Systems segment.

ACAS’s successful restructuring of debt provided it with sufficient operating flexibility. Moreover, the company also continues to derisk its balance sheet through a number of initiatives including repayment of debt. However, we believe limited accessibility to capital and increased funding costs have weakened the company’s strategic position in its sector. The resumption of dividend payments is not expected in the near term, given projections for capital losses. Moreover, the improved credit quality of the portfolio and gains over investments are expected to continue along with the economic recovery.

American Capital currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our long-term Neutral recommendation on the stock. One of the prime competitors of ACAS, Ares Capital Corporation ( ARCC - Snapshot Report ) also retains a Zacks #3 Rank.