FOR IMMEDIATE RELEASE:
January 11, 2005

Contact
Ken Jones, Principal (610) 238-0210
Brian Maney, Director, Corporate Communications (301) 951-6122

AMERICAN CAPITAL INVESTS $48 MILLION IN BUYOUT OF PHILLIPS & TEMRO
Receives Repayment of Note

Bethesda, MD - January 11, 2005 - American Capital Strategies Ltd. (Nasdaq:ACAS) announced today that in December 2004 it invested $48 million in Phillips & Temro Industries Inc., a leading manufacturer of highly engineered cold weather starting and comfort products for the automotive and truck OEM market and aftermarket. American Capital's investment takes the form of a revolving credit facility, senior term loans and senior subordinated debt. The investment supports Morgenthaler Partners' acquisition of Phillips & Temro from TMB Industries. American Capital was also an existing investor in Phillips & Temro.

In November 2002, American Capital and a wholly-owned affiliate of American Capital invested $5 million in the form of a senior secured subordinated note and common equity in support of TMB's acquisition of Phillips & Temro. American Capital and its affiliate have now received net proceeds of $7 million for the full repayment of the note and sale of the common equity interest, earning a combined 33% compounded annual rate of return, including all fees, interest and principal received over the life of American Capital's investment.

"Over the past year American Capital has had the opportunity to invest with many equity sponsors, developing new relationships and strengthening old ones," said American Capital COO Ira Wagner. "We had a great relationship with TMB and this is our fourth transaction with Morgenthaler. We are pleased that they came to us for financial support in their acquisition of Phillips and Temro, a company that has performed well since we originally invested in it two years ago."

American Capital invested approximately $2 billion in 2004, approximately $750 million in the fourth quarter of 2004 and $30 million year to date. For more information about American Capital's portfolio click here.

"Phillips & Temro's leading market position, superior customer relationships and patented products position it to capitalize on very positive trends in its core markets," said American Capital Principal Ken Jones. "The company is well positioned to perform through market cycles by virtue of its product development capability, competitive cost structure, diverse customer base, broad end markets and the anticipated expansion of its traditional US business base."

Phillips & Temro is a designer and manufacturer of cold weather start and emissions control components and systems, engine silencers and power distribution components and systems, serving predominantly the automotive and truck diesel OEM market and aftermarket. The company has established leading positions in these product categories through the continued introduction of patented products and technologies that improve the operating performance of engines while serving the need for compliance with environmental regulations. Phillips & Temro currently has 29 active patents and 9 patents pending in the US and abroad. The Company serves major OEM customers, including Caterpillar Inc., Cummins Engine Company, DaimlerChrysler Corporation, Ford Motor Company, General Motors Corporation, International Truck & Engine Corp., Kohler Co., Mack Trucks Inc., PACCAR Inc. and Volvo Truck Corporation. Headquartered in Eden Prairie, MN, the Company has three additional operating facilities in Minnesota and Manitoba and employs over 450 people.

"American Capital's thorough understanding of Phillips & Temro, its ability to invest up and down the balance sheet and dedicated team approach made them the best investment partner for our acquisition," said Morgenthaler Partners General Partner Al Stanley. "With strong financial backing, Phillips & Temro is in an even better position to continue to develop and deliver top quality products and solutions that their customers demand." Click here for more information about Phillips & Temro's high performace cold start and emission control products.

ABOUT AMERICAN CAPITAL

American Capital is a publicly traded buyout and mezzanine fund with capital resources of more than $4.8 billion. American Capital is an investor in and sponsor of management and employee buyouts, invests in private equity buyouts, and provides capital directly to private and small public companies. American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions and recapitalizations.

As of December 31, 2004, American Capital shareholders have enjoyed a total return of 326% since the Company's IPO - an annualized return of 22%, assuming reinvestment of dividends. American Capital has paid a total of $645 million in dividends and paid or declared $16.03 dividends per share since its August 1997 IPO 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 our website.

ABOUT MORGENTHALER PARTNERS

Founded in 1968, Morgenthaler is a leading, national private-equity firm with a middle-market, management buyout group based in Cleveland, Ohio, and a venture-capital group based in Menlo Park, California. The firm has funded more than 200 companies over its 35-year history and has a total of $2 billion under management. The firm's buyout group focuses on management buyouts and leveraged recapitalizations of stand-alone middle-market companies, as well as divisions or subsidiaries of larger corporations. Morgenthaler's portfolio of investments includes Formed Fiber Technologies Inc., a manufacturer and supplier of thermoformed automotive non-woven products for North American automotive OEMs and Tier I suppliers; GED Integrated Solutions Inc., a designer and builder of insulating glass fabrication systems for use by window and door manufacturers; and Precision Parts International, a manufacturer of high-precision, complex metal components using fine blanking, high-precision gearing and stamping processes. In August 2003, American Capital invested in Morgenthaler's acquisition of Formed Fiber Technologies. Click here for more information about the Formed Fiber Technologies investment.

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.