BlackRock to buy Global Infrastructure Partners for $12.5bn
Deal would create world’s second-biggest infrastructure firm and shake up private market investing
What do you think guys?
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I think the consolidation is just getting started
Makes a ton of sense for BlackRock. Obvious that GIP are leaders in infra PE, but the main point around this is that BlackRock’s infrastructure investing efforts on the equity side have recently been subpar. Have come across their current infra team multiple times and been baffled by some of their comments, decision making, etc., which has been shown through coming up short in processes they really wanted to win, and lighting capital on fire in certain deals. All to say that adding GIP brings seriousness to their infra arm.
Agree with all of this but would tack on that they previously looked at acquiring Stonepeak for the same reason w/o success but following that process they existing BlackRock Infra team bought some of Stonepeak's assets at absurd valuations
Have BlackRock’s returns been that bad?
Based on a quick look at their Fund III, it looks like they have a Net IRR of just under 15% vs their targeted gross IRR of 14% and the fund is still in it’s investment period?
Seems like its too early for returns to be relevant on their latest funded (still raising), but have the first few investments been that dumb?
Or is this more about their renewable funds, where returns have been lower, but looks like still in line with marketed targets?
Makes strategic sense but way too high of a price IMHO, the real winners are GIP's cofounders. Also RIP carry of future generations of GIP employees
GIP employees are reported to keep 100% of carried interest and 60% of performance fees while Blackrock parent gets 100% of management fees per WSJ
what a shit deal
What is non-carry performance fee?
Massive payday for the founders
Curious as to how people think this will affect comp/lateral recruiting opps for the existing BlackRock infra employees
also curious how this will impact bristol-based london SA’s at BlackRock’s Infrastructure Private Equity’s Prestigious Summer Analyst Programme
Never heard of this programme before how do you get into it?
There are not many 'wow' moments in private markets, let alone in infrastructure. I must admit I was one (of probably many) saying 'wow' when I received the notification. At first, I honestly thought it was a joke or that the news provider got compromised.
Putting that aside, it's a great deal but in my opinion solely for GIP founders (6 of them) and it beg the real question why would GIP losses its shining (but brutal) reputation to get into bed with a behemoth like BlackRock.
Not a FIG specialist but I would assume GIP valuation is mainly based on the management fees earned. It goes without saying that GIP is most likely a cash machine but valuation looks high, even more when you compare it against previous transactions in the space. I have few in mind:
Surely there are a lot of intangible factors going into the $12bn+ price tag but still, it warrants questions how they got to the number (feel free to correct me).
In my view, BlackRock acquiring GIP will pose the following challenges:
I think the biggest controversy is over culture and the clash it will create. It's no secret that GIP's culture is unique (read brutal) with a lot of smart and talented people. Comparatively, BlackRock is probably like living in the Care Bears world. However, how do you integrate such cultural differences? In my opinion, blood will be spilled and it's going to be ugly. What does this mean for juniors/mid-levels which are supposed to be the next generation of PE bros/sis (let alone the carry and comps). If I were to bet, I think GIP will be taking over BlackRock's infra business. Imagine working in the BlackRock's infra debt team (they were actually recruiting very recently) and now you need to report to the GIP's credit hardoes. That's tough and I wouldn't be surprised if some (if not the majority) of the team has already updated and polished their CVs.
How do you keep the top GIP managent incentivised when the same management just become billionaires overnight (assuming they weren't already)? I am sure they have lock-in but for how long?
GIP bread and butter has always been mega transactions with corporations with carves out, take over and so on. How do you manage the potential conflicts of interest arising from the fact that BlackRock could be potentially holding a bunch of shares on the other side? For sure, there are compliance rules but tricky to navigate presumably.
Historically and from my own experience, BlackRock infra team behaviour has been quite bizarre. From coming super short on some processes that were almost tailor made for them to pouring stupid valuations on assets that didn't make any sense (at the price paid). I also think, the infra platform never really took off in the magnitude they were hoping for ($50bn is massive but a drop in the $10tr bucket) and this acquisition definitely does make a meaningful difference, if not making a statement to the rest of the market.
Funnily enough, I think the announcement was made on BlackRock's comp day.
Last famous words, this transaction shows that even GIP was not big enough to stay independent. Perhaps all the above is BS and it was just the right time for the founders to take a well deserved retirement?
You make a ton of valid points (esp. Blackrock POV) but for GIP it is quite clear and straightforward: the founders/equity holders wanted to cash out one way or another and fuck the rest. This is always the case for all the GP IPOs and acquisitions, they want to monetise the stakes they have in the GP entity typically at the expense of everything else (worse economics for IPs, culture changes, etc.).
As someone who is entirely unfamiliar to this space, can you elaborate on Blackrock's "Care Bear" culture? I understand you're speaking relatively to GIP's culture.
As someone from the outside looking in, I always viewed BlackRock as a behemoth with top talent and hard working individuals likely putting in a lot of hours. Now, learning about the contrast to GIP's culture, I would love to hear more about why you think that. Can you elaborate?
This is all just early dominos to fall in Blackrock trying to buy as many private market firms as possible so they can own the entire investing world (public and private). I'd like to think the FTC comes in after 2-3 more of these but I doubt it.
Interesting. Which infra players (incl. public) do you think will be the next most likely targets?
I think there are a lot of MM infrastructure funds that are under a lot of pressure due to slower fundraising so if I were to bet, I would put some chips on independent GPs in the MM space (there are a number of them in Europe).
However, if there is one thing that the BlackRock/GIP transaction taught us is that a $100bn independent GPs is not even safe from being acquired so honestly, who knows what's being discussed behind the curtains.
Full disclaimer, this is pure crystal balling.
Think an interesting precedent transaction is the BlackRock acquisition of Tennenbaum Capital Partners as far as culture, compensation, leadership planning/retirement, conflicts of interest, integration, etc.,
And that went real poorly haha.
What happened?
I’ll just add that I think a big part of this consolidation and M&A is because as private market investing matures you will need to more and more provide portfolio solutions where you can provide a custom solution across asset classes for LPs
Legacy blackrock infra people will be interviewing for jobs with the GIP people next week…
Nothing more than GIP founders finding an excellent way to cash out while blatantly saying 'fuck you' to the rest of GIP's employees and to less of an extent, BlackRock. Echo what many have said already and just flagging that this is a sign of (further) shitty times to come. I truly believe infra fundraising peaked in 2021 and it's been a steady decline ever since. GPs are looking for ways to gtfo now that fundraising is far from smooth sailing, crappy Ponzi continuation funds being unable to scam LPs for too much longer, and scant realizations to date not changing any time soon (made worse by the protracted hold period of the underlying assets). I wouldn't be surprised if not only more infra platforms acquired one another but PE as well. EQT buying CIP. KKR buying ISQ. Partners Group buying Meridiam. GI Partners folding in DigitalBridge. Why not?
While I agree with you that there will be more consolidation, the rest of your take is pretty awful.
Infrastructure fund raising will continue to grow, there’s investor demand and there’s a big capital need.
GPs are selling now because valuations are great, these founders aren’t getting any younger, no one wants to work for their kids and no group of existing employees has enough money sitting around to takedown 100% of the GP from founders.
LPs want cheaper fees and products under one umbrella so consolidation will just be bolt ons by traditional buyout houses and asset managers to offer a complete product offering at aggressive pricing.
ultimately see this deal as bad for GIPs LPs, investors loved their independence and flexibility. Both are no longer true with how dysfunctional BlackRock private markets is
You think EQT can buy a quasi government pension? Bro what?
impressive deal for PWP and EVR. Thanks OP I’m gonna use this next time I call a FIG analyst from these places.
blackrock's legacy first reserve flagship fund BlackRock Global Infrastructure Funds (BGIF) is a good fund series that has had solid performance and is a sizable player (7.5bn fund IV, which will be announced soon). there's a lot of other infra businesses at blk and the fragmentation has caused endless confusion among bankers etc. and probably explains what people here are referring to as erratic or bizarre behavior... big question is what becomes of this team because they have been a direct competitor to GIP in certain processes and have written some checks close to $1bn with co-invest... it's not clear whether they will continue to operate independently as blk's "middle market infra fund" or be merged with GIP... the other blk infra teams are much smaller
Anybody have any details on the $650m retention pool and how that's getting distributed?
Don’t understand why people think this is a “fuck you” to the rest of the GIP employees from the founders. This now puts the BlackRock machine behind a business that requires these aging founders to go out and aggressively fundraise over the next 10 years to remain competitive in a growing space. Yes, this monetizes their GP stakes and could cause a loss of motivation but this also secures the long-term viability of GIP. From my understanding, nothing changes from a carry perspective for the employees and the only detriment is lower co-invest opportunities. Small price to pay given the benefits that BlackRock could provide at cleaning up culture and providing more backend support.
Bit of a naive take. GIP is a global name with significant longevity and reputation. There is nothing that BlackRock can provide from a branding or LP relationship standpoint that GIP itself did not already have. GIP's fund vintage #s are amongst the highest within infrastructure already
This is significantly worse for every person that did not get the equity package - comp will go down, culture will change (although as you say this may be a good thing) and the prestige/feeling of working at an indie/independent (hard to understand if you've never worked at one before) is gone
I think you’re overestimating the disruption this will have on the day-to-day of folks at GIP by saying this is “significantly worse”. They will get access to backend resources to a degree that doesn’t exist at a 400 person, $100bn fund. The lack of resources has always been a complaint of employees (ask me how I know).
I just don’t buy your point on missing prestige when getting bought by BlackRock, who although doesn’t carry the same weight in the private capital world as some others, is still a household name. Those that would’ve known GIP before, will still know where to find them. If you want to argue it doesn’t change anything from the fundraising perspective, who in the world is better at packing products for retail investors? Where is the biggest, currently untapped capital base for infrastructure investments? Right now you need to buy munis which are almost incomparable. Also, worth noting they are not being lumped into the rest of the BlackRock Real Assets umbrella, it says clearly in the articles that GIP in its current form will report directly to Larry Fink. This tells me that they will continue with a different name than just “BlackRock Infrastructure” allowing those who care to point to something that says they are still GIP.
Comp would be structured similarly to many of their public company competitors which I agree is slightly worse in theory but also allows the option to provide comp through RSUs. I’m sure GIP is also aware of their balance between culture and comp, they’re not going to let one thing slip without retaining talent by improving the other.
From a dealmaking perspective, BlackRock now gets you in the room with essentially any public company CEO you could want to speak to. Don’t see how there could be a negative side of this.
All this to say, calling my comment naive and saying this is “significantly worse” for all employees is not very well thought out. Let’s not pretend any of us actually know how this is going to shake out in 5 years but laying out all the possibilities shows it has a lot of potential benefits for both sides.
This is the right answer. This is not good for rank and file GIP employees or even MDs without meaningful equity stakes. They can spin it however they wish, once you are part of a public enterprise the bonuses will be full of stock and deferred comp etc. even if it isn’t today, it will be, and you’ll get paid less in carry etc.
The $650mm incentive pool is likely to bridge the fact that future carry will only be 60% allocated to the investment team, and 40% go to the new management company house (market standard), so the one-time incentive pool is to bridge potential loss of motivation of mid-level employees (SAs, VPs, Principals) over the next few years and maximize retention post-close. For new hires down the road, likely to be a worse deal going forward all else equal, as when they get to lucrative carry positions (Principal, Partner) the carry allocation will necessarily be lower under new ownership. Associates will probably be the worse off as they may have to wait until VP before they can expect carry vs getting carry as SA (maybe offset by a potential bump in cash comp).
All this is less relevant than the fact that GIP's latest fundraise for Fund V was not going well (well below target) with an impending March final close. Yes, fundraising environment is tough, but bad unrealized deals on Fund IV may have something to do with it. My sense is when you sell, it's also that you have a gut feeling that your carry may never materialize and you just know too much vs buyer who clearly leaned in here for strategic reasons. To other commenter's point, future carry expectations are also included in the DCF/valuation, not just AUM fees, and BlackRock clearly paid a full price with full value attributed to it. Overall a great deal and a great platform, just not sure it's worth $12.5bn.
So positive aspect is that BlackRock institutional LP relationships might actually help and provide additional GP support, including diversification across potentially new strategies etc., with lower risk of GIP ever becoming a ghost platform, not inconceivable given some of their bad deals.
This is wild. Huge valuation for GIP. Big price tag even for BlackRock. But the relative stability and long term investment profile of infrastructure assets would have been a big consideration in that price tag. All-in-all it's a pretty exciting deal.
What kind of technical due diligence will BlackRock conduct between now and when the deal goes through? Are there a handful of engineering firms it calls on to examine the operational health of the assets in the portfolio or do the finance folks just look at the historic numbers, verify there aren't any egregious red flags and call it a day?
the former - i am sure since the deal is already announced, BLK infra + a consultant already did their dd on each underlying asset themselves.
Since this directly impacts the existing infra investment team, highly unlikely they would have done the diligence (nor any other investment team). Normally the internal Corp Dev / M&A team + heavy reliance on bankers and maybe consultants (but it's pretty high-level / not going to go into deep diligence into single every asset - similar to secondaries).
How much did each of the founding partners make?
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