BlackRock: HPS Acquisition Boosts Firm’s Private-Market Capabilities

Key Morningstar Metrics for BlackRock

• Fair Value Estimate: $1,100.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

As we noted late last week, breaking news about BlackRock BLK closing in on its acquisition of HPS didn’t surprise us. HPS, an alternative asset manager focused on private credit, had $107 billion in fee-earning assets under management at the end of September 2024. Having already baked in just over $230 billion in acquired alternative-fee-earning AUM for BlackRock during 2024-28 (and more than $350 billion during 2024-33), with the firm using both cash and equity to fund these deals, the acquisition aligns with our expectations. As such, we do not expect it to have too much of an impact on our current fair value estimate of $1,100 per share.

The deal, announced Dec. 3, sees BlackRock buying HPS for roughly $12.3 billion, based on yesterday’s closing price for BlackRock’s shares. It’s structured as an all-equity deal, with BlackRock relying on equity issued by a wholly owned subsidiary—referred to as SubCo Units—that will be exchangeable on a 1/1 basis for BlackRock’s common stock to fund the deal. The deal’s implied multiple of around 30 times 2025 estimated fee-related earnings represents about a 25% premium to the current trading price of Ares Management (which is predominantly focused on private credit markets), based on expected fee-related earnings next year for that firm. We think this is reasonable, given what BlackRock is getting with the transaction.

Under the terms of the deal, BlackRock will be acquiring all of HPS for 12.1 million SubCo Units. Approximately 9.2 million units will be handed over at the closing, expected to happen by the middle of 2025, with the other 2.9 million paid out in five years, subject to certain post-closing conditions being met. There is also the potential for the payout of 1.6 million additional units in five years, should certain financial performance milestones be achieved.