Tuesday, July 23, 2024

BlackRock shakes up infra market with $12.5bn GIP acquisition

Must read

Roughly 17 years after its formation, New-York-based Global Infrastructure Partners is being acquired by BlackRock in a deal valued at $12.5 billion, of which $3 billion will be in cash and the remainder in approximately 12 million shares of BlackRock common stock.

“The question for us at GIP is, ‘How do we accelerate what we’re doing?’,” chief executive Adebayo ‘Bayo’ Ogunlesi told Infrastructure Investor when asked about his firm’s decision to sell. As for agreeing to sell to BlackRock specifically, Ogunlesi said: “Larry [Fink] has been very clear that infrastructure is a strategic area for BlackRock,” referring to the firm’s CEO.

He also cited the complementary profiles of each firm: “They do mid-cap transactions; we do large-cap transactions. They have a [fund of funds] solutions business; we don’t have a solutions business. Their debt business is largely investment grade; ours is largely sub-investment grade. So, you put these together and we can really provide a one-stop solution across to big clients, mid-size clients, sovereign wealth funds.”

The GIP management team, led by Ogunlesi and four of the firm’s founding partners – Michael McGhee, Raj Rao, Jonathan Bram and Matt Harris – will lead the combined infrastructure platform, which post-acquisition will total around $150 billion.

And while GIP will be wholly acquired by BlackRock, the brand will likely live on. One source close to the deal told Infrastructure Investor that the entire infrastructure business – including equity, debt and solutions – will become part of a new division that will preserve the GIP brand, though the official name has yet to be finalised. Ogunlesi, who will serve as chairman and report to Fink, will also join BlackRock’s global executive committee and board of directors. Raj Rao, GIP’s president and chief operating officer, will assume the same role within the new entity, and McGhee will serve as deputy chairman. Post-acquisition, the GIP team will be BlackRock’s second-largest shareholder.

Anne Valentine Andrews, who until now served as global head of infrastructure and real estate for BlackRock, has resigned her position to pursue another opportunity, BlackRock confirmed on Friday, shortly after news of the deal broke.

“She will continue as an adviser to the firm in the months ahead,” a spokesperson said.

BlackRock is funding the deal through $3 billion of additional debt “which will not meaningfully change its leverage profile,” BlackRock chief financial officer Martin Small said during BlackRock’s Q4 2023 earnings call.

Of the 12 million shares, 7 million will be transferred upon closing, while 5 million shares will be transferred in approximately five years subject to certain performance measures.

In a presentation, BlackRock said the deal will nearly double its pro-forma private markets management fees to over $1.5 billion, with GIP adding over $400 million of post-tax annual fee-related earnings at margins greater than 50 percent. The transaction has an implied acquisition multiple of between 25x and 29x GIP’s expected fee-related earnings for 2024, excluding a $650 million retention pool for GIP employees and future carry. BlackRock said this is in line with premium private markets franchises, now valued at between 25x and 35x fee-related earnings.

Small also noted that 100 percent of carried interest and capital commitments from all existing GIP funds will continue to be owned by GIP owners and employees. According to a letter GIP sent to its clients informing them of the deal – seen by Infrastructure Investor – the firm’s founders have committed to investing an additional $250 million to “certain GIP funds”, while BlackRock will commit an additional $500 million. It is unclear which funds will be the recipients of the additional $750 million in GP commitments.

Betting big on infra

“Infrastructure is a $1 trillion market forecasted to be one of the fastest growing segments of private markets in the years ahead,” Fink said during the earnings call, explaining the rationale and timing regarding the acquisition of GIP.

“A number of long-term structural trends support an acceleration in infrastructure investments. These include increasingly growing global demand and upgrading digital infrastructure like fibre, broadband, cell towers and data centers; renewed investments in logistical hubs such as airports, railroads, shipping ports as supply chains are rewired and a movement towards increased energy independence in many parts of the world supported by decarbonisation infrastructure in the United States and around the world.”

He reiterated that conviction in an interview with CNBC on Friday, when asked whether BlackRock had been considering buying a private equity firm.

“Let me be clear: we were not looking at any private equity firms. We believe the future in private markets is going to be infrastructure,” Fink said.

Infrastructure and private credit accounted for $14 billion in net inflows into BlackRock illiquid strategies during 2023. “We continue to expect these categories to be our primary growth drivers in the coming years,” Small said during the earnings call.

The GIP acquisition is the fourth such deal BlackRock has made in an effort to inorganically grow its infrastructure business. In 2011, it partnered with NTR to invest in renewable energy, then four years later it acquired Mexico’s Infraestructura Institucional (also known as I Cuadrada). In 2017, it acquired First Reserve, a Connecticut-based infrastructure fund manager focusing on the midstream sector and has since then tripled its infrastructure AUM.

The firm has several funds in market, including its fourth flagship fund – BlackRock Global Infrastructure Fund IV – for which it’s targeting $7.5 billion. GIP, for its part, is “in the late stages” of fundraising for its fifth flagship fund, which has a final target of $25 billion.

The transaction is expected to close in Q3 2024.

Additional reporting by Zak Bentley.

Latest article