BlackRock, Inc. (NYSE: BLK) has officially announced a definitive agreement to acquire HPS Investment Partners (“HPS”), a premier global credit investment manager boasting approximately $148 billion in assets under management. This strategic acquisition, valued at around $12 billion, will be entirely settled through BlackRock equity, marking a significant move to enhance BlackRock’s footprint in the burgeoning private credit market. The equity will be issued by a BlackRock subsidiary and will be exchangeable for BlackRock common stock.
This landmark transaction is poised to redefine the future of fixed income strategies, integrating public and private portfolios to optimize liquidity, returns, and diversification for investors. By combining BlackRock’s extensive network of corporate and asset owner relationships with the robust origination capabilities and capital flexibility of Hps Partners, the merged entity will create a formidable private credit franchise. This new powerhouse will operate alongside BlackRock’s existing $3 trillion public fixed income business, offering comprehensive public and private income solutions tailored to clients’ diverse portfolio needs.
“The synergy between HPS and BlackRock promises exciting opportunities for our clients, and we eagerly anticipate welcoming Scott Kapnick, Scot French, and Michael Patterson, along with the entire HPS team, to BlackRock,” stated Laurence D. Fink, BlackRock Chairman and CEO. “Our proactive approach has always been to anticipate and address our clients’ evolving needs. By incorporating the scale, capabilities, and deep expertise of the HPS partners team, BlackRock is uniquely positioned to provide clients with integrated solutions that seamlessly bridge public and private markets.”
The acquisition comes at a crucial time as durable global growth necessitates increased debt financing, with private capital increasingly becoming a pivotal solution. The integration of HPS partners will empower BlackRock to connect a wide spectrum of businesses, from small and medium-sized enterprises to large corporations, with essential financing to fuel economic expansion and job creation.
Market dynamics, technological advancements, and evolving regulations are continuously driving financial activities towards greater efficiency, establishing private credit as a structurally growing segment. BlackRock projects the private debt market to more than double, reaching an estimated $4.5 trillion by 2030. The inherent characteristics of private credit, including duration, returns, and yield, align perfectly with the investment objectives of clients with long-term capital, such as insurance firms, pension funds, sovereign wealth funds, wealth managers, and individuals saving for retirement.
A New Private Financing Solutions Powerhouse Led by HPS Partners
BlackRock and HPS partners will establish a novel private financing solutions business unit, spearheaded by the leadership team from HPS: Scott Kapnick, Scot French, and Michael Patterson. This unified platform will offer extensive capabilities spanning senior and junior credit solutions, asset-based finance, real estate, private placements, and CLOs. To deliver a comprehensive financing solution for alternative asset managers, the unit will consolidate direct lending, fund finance, and BlackRock’s GP and LP solutions, including fund of funds, GP/LP secondaries, and co-investments. This strategic combination will create an integrated solution for both clients and borrowers across corporate and asset-based finance, encompassing investment and non-investment grade, and private credit opportunities. As part of this transformative transaction, Scott Kapnick, Scot French, and Michael Patterson will join BlackRock’s Global Executive Committee, and Mr. Kapnick will serve as an observer on the BlackRock Board of Directors.
“Today signifies a pivotal milestone in our ambition to become the world’s preeminent provider of private financing solutions. Our alliance with BlackRock will significantly reinforce our position in this rapidly expanding yet increasingly competitive market,” commented Scott Kapnick, HPS CEO. “The fusion of HPS’s established culture of investment rigor with BlackRock’s global reach will unlock unprecedented opportunities for our investors and employees, setting the stage for sustained success for decades to come. My partners and I are thrilled to collaborate with Larry Fink and our new colleagues at BlackRock.”
HPS Partners: A Legacy of Credit Investment Excellence
Founded in 2007, HPS partners has emerged as a leading global credit investment manager, proficient across the entire capital structure. The firm has consistently demonstrated its expertise in identifying, structuring, and executing compelling investments. Its extensive investment acumen, coupled with a robust track record, has propelled its growth into one of the largest independent private credit platforms worldwide. HPS’s unique origination platform, encompassing both non-sponsor and sponsor channels, supported by a scalable and adaptable capital base, provides companies with a diverse array of customized financing solutions. The firm continues to be guided by its founders and long-term Governing Partners: Scott Kapnick, Michael Patterson, Scot French, Purnima Puri, Faith Rosenfeld, Paul Knollmeyer, and Kathy Choi.
BlackRock’s Commitment to Expanding Fixed Income and Private Markets
Since its inception in 1988, BlackRock has strategically expanded its fixed income capabilities, now serving clients through a substantial $3 trillion platform. This platform includes Fundamental Fixed Income, led by Rick Rieder, as well as Financial Institutions, Municipals, Systematic Fixed Income, Index Fixed Income, and iShares bond ETFs. BlackRock currently manages nearly $90 billion in private debt client assets, spanning sponsor- and non-sponsor-led core middle market direct lending across U.S., European, and Asian markets, venture lending, investment grade private placements, and real estate debt, alongside dedicated private infrastructure debt.
This acquisition will significantly enhance BlackRock’s offerings for insurance clients, for whom BlackRock is already a leading solutions provider, supporting 100 Aladdin technology clients and managing $700 billion in assets. HPS partners is a distinguished independent provider of private credit solutions for insurance clients. The addition of HPS will position BlackRock as a comprehensive, fiduciary provider of both public-private asset management and cutting-edge technology solutions tailored for the insurance sector.
Mr. Fink concluded, “For over 35 years, BlackRock has evolved in tandem with the capital markets. With the inclusion of GIP, and now HPS partners, we are significantly expanding our private markets capabilities across our global platform. Our Aladdin technology, including eFront, and soon Preqin, will democratize access to private markets, making them simpler and more transparent. These combined capabilities, along with our global reach, strong client relationships, and advanced technology, uniquely differentiate our ability to serve clients.”
Transaction Terms
Under the agreed terms, BlackRock will acquire 100% of HPS’s business and assets for a total consideration of 12.1 million SubCo Units. These SubCo Units are exchangeable one-for-one into BlackRock common stock at the holder’s discretion and will carry equivalent dividend rights to BlackRock common stock.
The transaction consideration will be disbursed in two parts: a portion at closing and the remainder deferred for approximately five years. Approximately 9.2 million SubCo Units will be paid upon closing. Around 25% of the consideration, equivalent to 2.9 million SubCo Units, will be paid in approximately five years, contingent upon meeting certain post-closing conditions. Additionally, there is potential for up to 1.6 million SubCo Units in additional consideration, based on achieving financial performance milestones within approximately five years. Up to $675 million in deal value will be allocated to fund an equity retention pool for HPS employees.
In total, the maximum number of BlackRock common shares issuable upon exchange for SubCo Units, including all units paid at closing, those eligible in approximately five years, and those potentially earned through performance milestones, would be approximately 13.7 million shares.
BlackRock anticipates retiring or refinancing approximately $400 million of existing HPS debt using cash as part of the transaction closing. The transaction is projected to have a negligible impact on BlackRock’s leverage profile.
BlackRock is dedicated to prudent capital management, prioritizing investments for growth and returning excess capital to shareholders via dividends and a consistent share repurchase program. Over the past decade, BlackRock has repurchased 29 million shares at an average price of $498 per share, representing a 15% annualized return for shareholders.
The acquisition is expected to boost private markets fee-paying AUM and management fees by 40% and approximately 35%, respectively, and is anticipated to be modestly accretive to BlackRock’s as-adjusted earnings per share in the first full year post-close.
The transaction is projected to close in mid-2025, pending regulatory approvals and standard closing conditions.
Perella Weinberg Partners LP served as the lead financial advisor to BlackRock, with Morgan Stanley & Co. LLC also acting as a financial advisor. Skadden, Arps, Slate, Meagher & Flom LLP and Clifford Chance LLP provided legal counsel. J.P. Morgan Securities LLC was the lead financial advisor to HPS, with Goldman Sachs & Co. LLC, BofA Securities, Inc., Deutsche Bank Securities Inc., BNP Paribas, and RBC Capital Markets serving as co-financial advisors, and Fried, Frank, Harris, Shriver & Jacobson LLP as legal counsel.
Investor Teleconference and Webcast
BlackRock hosted an investor call on Tuesday, December 3, 2024, at 8:00 a.m. ET to discuss the transaction in detail. A replay of the webcast and related investor presentation are available on the investor relations section of BlackRock’s website at https://ir.blackrock.com/news-and-events/events-and-presentations/.
About BlackRock
BlackRock’s mission is to enhance financial well-being for an increasing number of people. As a fiduciary to investors and a leader in financial technology, BlackRock simplifies and reduces the cost of investing, helping millions achieve their savings goals throughout life. For more information about BlackRock, please visit www.blackrock.com/corporate.
About HPS Investment Partners
HPS partners is a leading global, credit-focused alternative investment firm committed to delivering innovative capital solutions and generating attractive, risk-adjusted returns for its clients. Managing diverse strategies across the capital structure, HPS’s platform offers the scale and flexibility to invest in companies of all sizes through standard or customized solutions. As of September 2024, HPS partners managed approximately $148 billion in assets. For additional information, please visit www.hpspartners.com.
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