BlackRock (BLK) announced on Tuesday that it will acquire HPS Investment Partners for approximately $12 billion in an all-stock deal. The investment management company will acquire HPS, a global credit investment manager overseeing about $148 billion in client assets. The deal is expected to close by mid-next year.
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With this acquisition, BLK expects that its management fees will increase by 35% while its fee-paying assets under management (AUM) in private markets will rise by 40%. Additionally, this deal is expected to be “modestly accretive” to BLK’s adjusted earnings per share in the first full year after the acquisition closes.
Why Is BLK Acquiring HPS Investment Partners?
BLK anticipates that this acquisition will provide critical access to the private credit market. According to the company, “the combined private credit franchise will work side-by-side with BlackRock’s $3 trillion public fixed income business to provide both public and private income solutions for clients across their whole portfolios.”
To understand the appeal of private credit, it’s important to note that this market encompasses all debt that is neither publicly issued nor traded. Over the past decade, it has seen remarkable growth, fueled by higher interest rates and stricter banking regulations, which have prompted banks to reduce leveraged lending activities.
This explosive growth is backed by data. According to a Cambridge Associates report citing PitchBook, the private credit market has ballooned into a $1.6 trillion industry. In response to this trend, BlackRock is strategically positioning itself to gain a foothold in private markets with the HPS acquisition.
What’s more, the HPS deal represents BLK’s third major acquisition this year, which shows its aggressive expansion strategy. Earlier in the year, BlackRock acquired data provider Preqin for $3.2 billion and private equity firm Global Infrastructure Partners for $12.5 billion.
Is BLK a Good Stock to Buy?
Analysts remain bullish about BLK stock, with a Strong Buy consensus rating based on 13 Buys and two Holds. Over the past year, BLK has increased by more than 35%, and the average BLK price target of $1,065.07 implies an upside potential of 4.4% from current levels.
