425: Runway Growth Finance to Acquire SWK Holdings in Three-Step Merger

Runway Growth Finance Corp. (RWAY) has entered into a definitive agreement to acquire SWK Holdings Corporation (SWK) through a three-step merger, offering SWK stockholders RWAY common stock or cash, plus a guaranteed cash payment.

Summary

• Runway Growth Finance Corp. (RWAY) will acquire SWK Holdings Corporation (SWK) through a three-step merger process.
• The First Merger involves RWAY Portfolio Corp. (Acquisition Sub) merging into SWK, with SWK surviving as a wholly-owned subsidiary of RWAY Portfolio Holding Corp. (Intermediary Sub).
• Immediately after, the surviving SWK will merge into Intermediary Sub, with Intermediary Sub surviving as a wholly-owned subsidiary of RWAY.
• Finally, Intermediary Sub will merge into RWAY, with RWAY continuing as the surviving corporation.
• SWK stockholders will have the option to elect to receive either newly issued shares of RWAY common stock (Per Share Stock Consideration) or an amount of cash equal to SWK's Per Share Net Asset Value (Per Share Cash Consideration).
• In addition to the stock or cash, SWK stockholders will receive a Per Share Guaranteed Cash Payment from Runway Growth Capital LLC (RWAY's external adviser), totaling $9,000,000.
• The Exchange Ratio for stock consideration will be calculated as SWK Per Share NAV divided by RWAY Per Share NAV.
• The respective boards of directors of RWAY and SWK have approved the Merger Agreement and the contemplated transactions.
• Double Black Diamond Offshore Ltd., a key stockholder owning approximately 69.9% of SWK Common Stock as of October 9, 2025, has agreed to vote its shares in favor of the merger.
• The closing of the First Merger is targeted for on or prior to December 31, 2025.
• SWK will not be obligated to consummate the merger if a third-party valuation of its portfolio assets is more than $5,000,000 less than SWK's good faith determination of the carrying value.

Sentiment

Score: 7

Explanation: The merger is a strategic move for RWAY to acquire SWK, supported by a significant SWK stockholder and a fairness opinion for SWK shareholders. The structure provides flexibility for SWK shareholders (cash or stock election) and includes a guaranteed cash payment. However, all mergers carry integration and execution risks, and the forward-looking statements highlight several uncertainties.

Positives

• SWK's key stockholder, holding approximately 69.9% of outstanding shares, has agreed to vote in favor of the merger, significantly increasing the likelihood of stockholder approval.
• The SWK Board received a fairness opinion from Keefe, Bruyette & Woods, Inc. (KBW) stating that the merger consideration, including the guaranteed cash payment, is fair from a financial point of view to SWK common stockholders as a group.
• The merger consideration includes a guaranteed cash payment of $9,000,000 from RWAY's external adviser, providing additional value to SWK shareholders.
• RWAY's board of directors unanimously approved the transaction, indicating strong internal support for the acquisition.

Negatives

• The merger consideration for SWK stockholders is subject to a cap on the aggregate number of RWAY shares issued (Total Stock Consideration) and the aggregate cash amount (Aggregate Cash Consideration), which could lead to proration and a different mix of consideration than elected.
• SWK is subject to a termination fee of $8,225,000 payable to RWAY under certain conditions, such as terminating for a superior proposal or if a competing proposal is consummated after a termination due to lack of SWK stockholder approval.

Risks

• Uncertainties associated with the ability of the parties to consummate the Mergers on the expected timeline, or at all.
• Uncertainties regarding the expected synergies and savings associated with the Mergers.
• Risks related to the ability to realize the anticipated benefits of the Mergers, including the expected elimination of certain expenses and costs.
• The percentage of SWK stockholders voting in favor of the applicable proposal.
• The possibility that competing offers or acquisition proposals will be made.
• The possibility that any or all of the various conditions to the consummation of the Mergers may not be satisfied or waived.
• Risks related to diverting management's attention from ongoing business operations.
• The combined company's plans, expectations, objectives, and intentions as a result of the Mergers.
• Any potential termination of the Merger Agreement.
• The future operating results and net investment income projections of RWAY, SWK, or the combined company.
• The ability of the Adviser and its affiliates to attract and retain highly talented professionals.
• The business prospects of RWAY, SWK, or the combined company, and the prospects of their portfolio companies.
• The impact of the investments that RWAY, SWK, or the combined company expect to make.
• The ability of the portfolio companies of RWAY, SWK, or the combined company to achieve their objectives.
• The expected financings and investments and additional leverage that RWAY, SWK, or the combined company may seek to incur in the future.
• The adequacy of the cash resources and working capital of RWAY, SWK, or the combined company.
• The timing of cash flows, if any, from the operations of the portfolio companies.
• The risk that stockholder litigation in connection with the Mergers may result in significant costs of defense and liability.
• Future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities).

Future Outlook

The filing contains forward-looking statements regarding the future operating results of RWAY and SWK, distribution projections, business prospects of both companies and their portfolio companies, and the anticipated impact of expected investments. It also highlights expected synergies and cost eliminations resulting from the Mergers.

Management Comments

• RWAY's board unanimously approved the merger, determining it advisable, fair, and in the best interests of its stockholders.
• SWK's board approved and declared advisable, fair, and in the best interests of the company and its stockholders, and resolved to recommend adoption of the agreement.

Industry Context

This merger represents a strategic consolidation within the financial services sector, specifically involving a Business Development Company (BDC). The acquisition of SWK by RWAY could enhance RWAY's investment portfolio, potentially leading to increased scale, diversified assets, and operational efficiencies within the combined entity. Such transactions are common as BDCs seek to grow their asset base and market presence.

Management Changes

Corporate Governance

Legal Proceedings

• The filing identifies the risk of stockholder litigation in connection with the Mergers, which may result in significant costs of defense and liability.
• The parties have agreed to reasonably cooperate and consult in the defense and settlement of any such litigation.

Related Party Transactions

• A Key Stockholder Agreement was entered into between RWAY and Double Black Diamond Offshore Ltd. (a significant SWK stockholder, owning approximately 69.9% of SWK Common Stock) and Black Diamond Offshore Ltd. This agreement commits the Key Stockholder to vote in favor of the merger and refrain from certain stockholder activism activities against RWAY.
• Runway Growth Capital LLC, RWAY's external adviser, will provide a $9,000,000 guaranteed cash payment to SWK stockholders as part of the merger consideration.

Stakeholder Impact

• Shareholders (SWK): Will receive merger consideration in the form of RWAY common stock or cash, plus a guaranteed cash payment. Their approval is required for the merger to proceed.
• Shareholders (RWAY): Will experience dilution due to the issuance of new RWAY common stock as part of the merger consideration. No vote is required from RWAY shareholders for this transaction.
• Employees (SWK): Employment or service of each Service Provider is expected to be terminated immediately prior to the Effective Time. Continuing employees will receive comparable compensation and benefits for 12 months post-merger.
• Management (SWK): Current and former directors, officers, managers, and employees will retain indemnification rights and D&O insurance coverage for six years post-merger.
• Creditors (SWK): The Existing Credit Agreement will be repaid and terminated at closing, and the Existing Notes Indenture will be amended, impacting SWK's debt structure.

Next Steps

• RWAY will file a registration statement on Form N-14 (containing a preliminary proxy statement/prospectus) with the SEC.
• SWK will mail a definitive proxy statement/prospectus to its stockholders after the Form N-14 is declared effective.
• SWK will duly call, give notice of, convene, and hold a special meeting of stockholders to vote on the adoption of the Merger Agreement.
• RWAY will use reasonable best efforts to cause the shares of RWAY Common Stock to be issued in the merger to be listed on NASDAQ.
• SWK will terminate the employment or service of each Service Provider no later than immediately prior to the Effective Time.
• SWK will terminate any 401(k) plans effective no later than the day immediately before the Closing Date.
• SWK will deliver an executed payoff letter for the Existing Credit Agreement to RWAY prior to the Closing Date.
• SWK will use good faith efforts to prepare and deliver audited consolidated financial statements for the year ended December 31, 2025, to RWAY prior to the Effective Time.

Key Dates

Recommendation

This is a definitive merger agreement, which typically leads to the target company's stock price moving closer to the acquisition price (if not already there). For SWK shareholders, the decision is whether to take cash or stock, and the guaranteed cash payment adds value. For RWAY shareholders, it's an acquisition that expands their portfolio, but the immediate impact on RWAY's stock price depends on market perception of the deal's value and integration prospects. Given the definitive nature and pre-announced terms, a 'hold' is appropriate for existing shareholders to await closing, while new investors would need to evaluate the arbitrage opportunity or long-term combined entity prospects.

Keywords

Merger, Acquisition, SEC Filing, RWAY, SWK, Runway Growth Finance, SWK Holdings, Business Development Company, BDC, Financial Services, Investment Company Act, Stockholder Agreement, Net Asset Value, Exchange Ratio, Cash Consideration, Stock Consideration, Corporate Governance, Risk Management, Financial Reporting