NEWS

FOR IMMEDIATE RELEASE:
May 11, 2007

Contact
Kevin Kuykendall, Managing Director, Energy Group (214) 273-6634
Scott Pinsonnault , Vice President, Energy Group (214) 273-6659
Brian Maney, Director, Corporate Communications (301) 951-6122

AMERICAN CAPITAL INVESTS $16 MILLION IN ADD-ON ACQUISITION BY
VAREL HOLDINGS

Bethesda, MD – May 11, 2007 - American Capital Strategies Ltd. (Nasdaq:ACAS) announced today that in the first quarter of 2007 it invested $16 million in the acquisition of Pendemak Industries Ltd. by its portfolio company Varel Holdings Inc., parent to Varel International Ltd.  Pendemak is Varel’s exclusive distributor in Canada.  American Capital’s investment takes the form of a senior unirate loan.  Apollo Investment Corporation is also investing in unirate debt.  KRG Capital Partners L.L.C. maintains its majority ownership of Varel.

“We are delighted to be making this investment to support Varel’s add-on acquisition of Pendemak Industries, its exclusive Canadian distributor,” said Darin Winn, American Capital Regional Managing Director.  “Our Energy Group’s investment in the recapitalization of Varel eight months ago has exceeded expectations and afforded us this excellent opportunity to build on that success.”

American Capital has invested directly and through its funds under management $7.4 billion in the last twelve months, $2.7 billion year to date and $1.1 billion quarter to date.  Not including funds under management, American Capital has invested $5.4 billion in the last twelve months, $2.1 billion year to date and $1 billion quarter to date.   For more information about American Capital’s portfolio, click here.

“For the past 26 years, Pendemak has been an outstanding and reliable Varel distributor.  The integration of Pendemak provides Varel with greater visibility in its second largest market, whose strong growth prospects are supported by the potential development of some of the world’s largest untapped hydrocarbon reserves,” said Kevin Kuykendall, American Capital Managing Director, Energy Group.  “The acquisition further enables Varel to, in cooperation with Pendemak’s experienced management team, better develop custom specialized drill bits for its highly loyal Canadian customers.”

“Pendemak delivers significant added value to its customers with its proprietary data base that accelerates and maximizes the efficiency of customers’ drilling programs.  In addition, it maintains a low cost, top quality polycrystalline diamond compact drill bit repair facility and highly efficient remanufacturing processes,” said Scott Pinsonnault, American Capital Vice President, Energy Group.  “These competitive advantages can be replicated and leveraged throughout Varel’s worldwide operations.  The additional engineering resources will enhance Pendemak’s ability to focus on product development to meet its customers’ technical challenges.”

Founded in 1980, Pendemak has been the exclusive Canadian distributor of Varel oil field drill bits for 26 years.  In addition to supplying drill bits, Pendemak maintains a proprietary database of bit performance, drilling parameters and formation tops for more than 15,000 Canadian wells.  Pendemak also operates superior quality drill-bit repair and remanufacturing facilities.  Pendemak has more than 300 customers including traditional E&P companies, coalbed methane producers and oil sands projects.  Talisman Energy, Devon Canada Corporation and Trilogy Energy are among its top customers.  Pendemak is headquartered and has an operations center and repair facility in Edmonton, Alberta, Canada.  It has a sales office and a storage facility in Calgary and 14 field offices and 46 workover and bit stockpoints throughout central and western Canada.

American Capital invested $50 million in Varel in October 2006, supporting KRG Capital’s recapitalization of the Company.  Founded in 1947, Varel is a leading designer and manufacturer of roller-cone and polycrystalline diamond compact drill bits for the global oil & gas and mining industries.  A global business, Varel markets drill bits in 85 countries and generates approximately half of its revenues outside the United States.  Varel’s major customers include ExxonMobil Corporation, Occidental Petroleum Company, Saudi Arabian Oil Company, Total, Sonatrach, Kuwait Oil Company and Royal Dutch Shell plc.  The Company is headquartered in Carrollton, TX.  It has manufacturing facilities in Carrollton, Houston, TX, Matamoros, Mexico and Tarbes, France, as well as sales offices throughout the world.  Varel has more than 1,000 employees.

“It is a pleasure to again be working with American Capital,” said Chuck Hamilton, KRG Capital Partners Managing Partner.  “We invited American Capital to provide financing for Varel’s acquisition of Pendemak, confident that it would again demonstrate its ongoing commitment to the companies in which it invests.  We have not been disappointed.“

For more information on American Captial original investment in Varel, click here.

ABOUT AMERICAN CAPITAL ENERGY GROUP

The American Capital Energy Group invests senior debt, subordinated debt and equity across all segments of the energy industry, including equipment manufacturing, production, transportation, distribution, and services in oil & gas, ethanol and power. Companies interested in learning more about American Capital's energy initiative should contact Kevin Kuykendall at (214) 273-6634, or visit the website at www.americancapital.com/energy.

ABOUT AMERICAN CAPITAL

American Capital is the second largest U.S. publicly traded alternative asset manager with approximately $11 billion in assets under management (second to Fortress (NYSE: FIG)).  American Capital, both directly and through its global asset management business, is an investor in management and employee buyouts, private equity buyouts, and early stage and mature private and public companies.  American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions, recapitalizations and securitizations.  American Capital and its affiliates invest from $5 million to $800 million per company in North America and €5 million to €500 million per company in Europe.

As of April 30, 2007, American Capital shareholders have enjoyed a total return of 660% since the Company's IPO - an annualized return of 23%, assuming reinvestment of dividends.  American Capital has paid a total of $1.6 billion in dividends and paid or declared $24.24 dividends per share since going public in August 1997 at $15 per share.

Companies interested in learning more about American Capital's flexible financing should contact Mark Opel, Senior Vice President, Business Development, at (800) 248-9340, or visit www.AmericanCapital.com or www.EuropeanCapital.com.

ABOUT KRG CAPITAL PARTNERS

Founded in 1996, KRG Capital Partners is a Denver-based private equity buyout firm that currently has over $2.2 billion in cumulative capital deployed and remaining committed capital. KRG specializes in acquiring and recapitalizing middle-market companies. In addition to Pendemak , American Capital has provided financing and invested with KRG in ten other portfolio companies: Case Logic Inc., a designer and manufacturer of storage products and accessories; Chronic Care Solutions Inc., d/b/a CCS Medical, a leading national direct-to-consumer, mail-order chronic illness supply company focused primarily on diabetic supplies; CIVCO Holdings Inc., a global specialist in the design, manufacture and marketing of specialized medical products for ultrasound and minimally invasive surgical equipment and procedures; FMI International Inc., a third party logistics provider to the U.S. apparel industry; HMS Healthcare Inc., a holding company for non-risk access preferred provider organizations; Interior Specialists Inc., a leading provider of outsourced interior design and installation services for the Western U.S.; The Tensar Corporation, a full-service provider of specialty products and engineering services used for site development, transportation and environmental infrastructure; TransCore Holdings Inc., a provider of transportation information management systems and services; Trinity Hospice, a provider of hospice care; and Varel Holdings, parent to Varel International Ltd., a worldwide designer and manufacturer of roller-cone and polycrystalline diamond compact drill bits for the oil & gas and mining industries.

Performance data quoted above represents past performance of American Capital. Past performance does not guarantee future results and the investment return and principal value of an investment in American Capital will likely fluctuate. Consequently, an investor's shares, when sold, may be worth more or less than their original cost. Additionally, American Capital's current performance may be lower or higher than the performance data quoted above.

This press release contains forward-looking statements. The statements regarding expected results of American Capital Strategies are subject to various factors and uncertainties, including the uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional, national or international economic conditions, or changes in the conditions of the industries in which American Capital has made investments.

This announcement is neither an offer to sell nor a solicitation to buy securities.
This announcement appears as a matter of record only.