BlackRock manages $10 trillion and is looking to capitalize on the boom in investor interest in alternative assets.
BlackRock plans to buy HPS Investment Partners in a deal worth $12 billion or more.
HPS Investment Partners is a global investment company that manages assets across debt and liquid credit, including syndicated leveraged loans, asset-based finance, and real estate. As of June 2024, it manages assets worth approximately $117 billion.
BlackRock, the largest asset manager in the world, manages $10 trillion and is looking to capitalize on the boom in investor interest in alternative assets, such as infrastructure and private equity.
The agreement was to strengthen its alternative investment business by purchasing one of the biggest private credit companies, which manages around $150 billion at the end of September. BlackRock (BLK) shares increased over 2% in after-hours trading.
The two parties have reached a general outline of the deal, announced after the US Thanksgiving holiday, where it agreed to pay HPS with a mix of cash and shares.
HPS was considering an IPO (initial public offering) earlier this year, which could have raised the company’s worth to almost $10 billion. Hence, the acquisition of BlackRock could be expensive.
Chief executive officer of BlackRock, Larry Fink, has taken serious steps to expand in private markets, and by buying HPS, BlackRock would have completed the two largest acquisitions of alternative assets in less than a year.
It attempts to match the private assets looked at by rich people, insurers, pension funds, and sovereign wealth funds.
It became the second largest manager of infrastructure assets, with around $170 billion, after acquiring $12.5 billion of Global Infrastructure Partners in October.
Fink has promised that the £2.55 billion ($3.25 billion) deal to finalize private markets data provider Preqin will allow the company to index the private markets and pay the way for exchange-traded funds to alternative assets.
HPS would enhance its ability to compete in private lending, one of the most lucrative and popular areas of finance.
HPS manages $123 billion in private credit, making it one of the largest independent managers in the $1.6 trillion industry. It employs over 760 people and manages an extra $22 billion in public credit.
The company was founded in 2007 by Scott Kapnick, Scot French, and Mike Patterson. Later, it acquired JPMorgan Chase & Co. in 2016 in a deal valued at almost $1 billion.
The potential acquisition of HPS and BlackRock’s recent run of takeovers has interested both bulls and bears. According to TipRanks, some analysts are impressed by BLK’s strong financial performance in organic base fees and wide product offerings, including fixed income and alternatives.
The possible acquisition of HPS would strengthen its position in the private lending market.
On the other hand, Bears is cautious about HPS acquisition since it might reduce EPS (earnings per share), and the growing number of transactions has weakened BlackRock’s financial flexibility.
Since BlackRock has a strategic placement in the asset management industry, analysts are highly optimistic that buying BlackRock shares will be a good idea.
The consensus rating for BLK shares on TipRanks is a strong buy based on 13 Buy and two hold ratings.
Also, a 4.5% increase in the current prices is due to the average BlackRock price objective of $1,065.07. In the meantime, BLK stocks have increased 27.9% this year.
After acquiring HPS, BlackRock’s alternative investments business would be bigger than Carlyle Group Inc. and will compete with private asset leaders like Apollo Global Management Inc. and KKR & Co. in size. BlackRock is still bigger, having around $1.1 trillion in assets in the third quarter.
Since the investors have transitioned from higher-fee active mutual funds towards low-cost index funds and exchange-traded funds (ETFs) during the past ten years, BLK’s entry into the private markets would significantly increase their income and profit.
