BlackRock to Acquire HPS Investment Partners

• HPS Investment Partners is a leading global credit investment manager that provides creative capital solutions across $148 billion in client assets
• This combination creates an integrated private credit franchise with ~$220 billion in client assets
• Expected to increase private markets fee-paying AUM and management fees by 40% and ~35%, respectively
• Transaction structured for leadership continuity and alignment with BlackRock’s shareholders, with proceeds paid in BlackRock equity
• HPS leadership team will lead a new, combined business unit

BlackRock (NYSE: BLK) and HPS Investment Partners (“HPS”), a leading global credit investment manager with approximately $148 billion in client assets, have entered into a definitive agreement for BlackRock to acquire HPS for approximately $12 billion, with 100% of consideration paid in BlackRock equity. The equity is issued by a wholly-owned subsidiary of BlackRock (“SubCo Units”), and exchangeable on a one-for-one basis into BlackRock common stock.

The future of fixed income is building public and private portfolios to optimize liquidity, yield, and diversification. This transaction will bring together BlackRock’s strong corporate and asset owner relationships with HPS’s diversified origination and capital flexibility. 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.

“I am excited by what HPS and BlackRock can do together for our clients and look forward to welcoming Scott Kapnick, Scot French, and Michael Patterson, along with the entire HPS team, to BlackRock. We have always sought to position ourselves ahead of our clients’ needs. Together with the scale, capabilities, and expertise of the HPS team, BlackRock will deliver clients solutions that seamlessly blend public and private,” said Laurence D. Fink, BlackRock Chairman and CEO.

Durable global growth will require higher volumes of debt financing and markets are increasingly looking to private capital as an answer. The addition of HPS will position BlackRock to connect companies of all sizes, from small and medium-sized businesses to large corporations, with financing for investments that support economic growth and job creation.

Market forces, technology, and regulation are consistently moving financial activity to where it can be done most efficiently, making private credit a structural growth segment. BlackRock expects the private debt market will more than double to $4.5 trillion by 2030. The duration, returns, and yield characteristics of private credit match the needs of clients with long-dated capital, including insurance companies, pensions, sovereign wealth funds, wealth managers, and investors saving for retirement.

BlackRock and HPS will form a new private financing solutions business unit led by Scott Kapnick, Scot French, and Michael Patterson. This combined platform will have broad capabilities across senior and junior credit solutions, asset-based finance, real estate, private placements, and CLOs. To develop a full-service financing solution for alternative asset managers, the business will unite direct lending, fund finance, and BlackRock’s GP and LP solutions (fund of funds, GP/LP secondaries, co-investments). This combination creates an integrated solution for clients and borrowers across corporate and asset-based finance, investment and non-investment grade and private credit. As part of this transaction, Messrs. Kapnick, French, and Patterson will join BlackRock’s Global Executive Committee and Mr. Kapnick will be an observer to the BlackRock Board of Directors.

“Today marks an important milestone in our drive to become the world’s leading provider of private financing solutions. Our partnership with BlackRock will further strengthen our position in this fast growing but increasingly competitive market. The combination of HPS’s proven culture of investment discipline with BlackRock’s global reach will allow us to seize new opportunities for our investors and employees and set us up for continued success for the next decade and beyond. My partners and I are energized to work with Larry Fink and our new BlackRock colleagues,” said Scott Kapnick, HPS CEO.

Founded in 2007, HPS is a leading global credit investment manager with capabilities across the capital structure. HPS has continually demonstrated its ability to identify, structure, and execute compelling investments, and its extensive investing expertise coupled with the firm’s strong track record has fueled its growth into one of the largest independent private credit platforms. HPS’s differentiated origination platform, which spans non-sponsor and sponsor channels, underpinned by a scaled and flexible capital base, offers companies a wide range of bespoke financing solutions. The firm continues to be led by its founders and long-term Governing Partners Scott Kapnick, Michael Patterson, Scot French, Purnima Puri, Faith Rosenfeld, Paul Knollmeyer, and Kathy Choi.

Since BlackRock’s founding in 1988, the firm has grown its fixed income capabilities, and now serves clients through a $3 trillion platform across Fundamental Fixed Income, led by Rick Rieder, as well as Financial Institutions, Municipals, Systematic Fixed Income, Index Fixed Income, and iShares bond ETFs. BlackRock manages nearly $90 billion in private debt client assets across sponsor- and non-sponsor-led core middle market direct lending in U.S., European, and Asian markets, venture lending, investment grade private placements, and real estate debt, as well as dedicated private infrastructure debt.

This transaction will deepen BlackRock’s capabilities for insurance clients. BlackRock is a leading provider of solutions for insurers, which represent 100 Aladdin technology clients and $700 billion in assets under management at BlackRock. HPS is a leading independent provider of private credit for insurance clients. The addition of HPS will position BlackRock to be a full-service, fiduciary provider of public-private asset management and technology solutions for insurance clients.

Mr. Fink continued, “For over 35 years, BlackRock has grown and evolved alongside the capital markets. With GIP, and now HPS, we are expanding our private markets capabilities across our comprehensive global platform. Our Aladdin technology, including eFront, and soon Preqin, will make access to private markets simpler and more transparent. These capabilities, together with our global reach, deep relationships, and powerful technology, differentiate our ability to serve clients.”

Terms of the Transaction

Under the terms of the transaction, BlackRock will acquire 100% of the business and assets of HPS for total consideration of 12.1 million SubCo Units.

SubCo Units are exchangeable on a one-for-one basis into BlackRock common stock at the election of the holder, and will have equivalent dividend rights to BlackRock common stock.

A portion of the transaction consideration will be paid at closing, and a portion will be deferred approximately five years. Approximately 9.2 million SubCo Units will be paid at closing. Approximately 25% of the consideration, or 2.9 million SubCo Units, will be paid in approximately five years, subject to achievement of certain post-closing conditions. There is also potential for additional consideration to be earned of up to 1.6 million SubCo Units that is based on financial performance milestones measured and paid in approximately five years. Of the total deal consideration, up to $675 million in value will be used to fund an equity retention pool for HPS employees.

In aggregate, inclusive of all SubCo Units paid at closing, eligible to be paid in approximately five years, and potentially earned through achievement of financial performance milestones, the maximum amount of BlackRock common stock issuable upon exchange for SubCo Units would be approximately 13.7 million shares.

As part of closing the transaction, BlackRock expects to retire for cash, or refinance, approximately $400 million of existing HPS debt. The transaction is not expected to meaningfully change BlackRock’s leverage profile.

BlackRock is committed to being a good steward of shareholders’ capital. Its capital management strategy is to first invest for growth, and then return excess capital to shareholders through a combination of dividends and a consistent share repurchase program. Over the last ten years BlackRock has repurchased 29 million shares, at an average repurchase price of $498 per share, which represents a 15% annualized return for shareholders.

The deal is expected to increase private markets fee-paying AUM and management fees by 40% and approximately 35%, respectively, and be modestly accretive to BlackRock’s as-adjusted earnings per share in the first full year post-close.

The transaction is expected to close in mid-2025 subject to regulatory approvals and customary closing conditions.

Perella Weinberg Partners LP served as lead financial advisor to BlackRock. Morgan Stanley & Co. LLC also served as financial advisor, with Skadden, Arps, Slate, Meagher & Flom LLP and Clifford Chance LLP acting as legal counsel. J.P. Morgan Securities LLC served as lead financial advisor to HPS, with Goldman Sachs & Co. LLC, BofA Securities, Inc., Deutsche Bank Securities Inc., BNP Paribas, and RBC Capital Markets acting as co-financial advisors and Fried, Frank, Harris, Shriver & Jacobson LLP serving as legal counsel.

Teleconference and Webcast Details

BlackRock will hold an investor call on Tuesday, December 3, 2024 at 8:00 a.m. ET to discuss the transaction.

Members of the public who are interested in participating in the teleconference should dial, from the United States, (313) 209-4906, or from outside the United States, (877) 502-9276, shortly before 8:00 a.m. ET and reference the BlackRock Conference Call (ID Number 6786819). A live, listen-only webcast will also be available via the investor relations section of www.blackrock.com.

The webcast will be available for replay by 11:00 a.m. ET on Tuesday, December 3, 2024. To access the replay of the webcast, please visit the investor relations section of www.blackrock.com.

An investor presentation with additional details about the transaction is also available on the “Events & Presentations” section of the investor relations website: https://ir.blackrock.com/news-and-events/events-and-presentations/

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