Acquisition Overview
BlackRock has finalized the acquisition of Global Infrastructure Partners (GIP), the largest independent infrastructure manager globally, boasting over $100 billion in assets under management (AUM). The deal, set to close in Q3 2024, involves a $3 billion cash payment and 12 million BlackRock shares. With this acquisition, BlackRock, already the world's largest asset manager, aims to triple its infrastructure assets, becoming one of the world's premier infrastructure managers as well. GIP's impressive portfolio, including investments in Gatwick Airport, London City Airport, and Melbourne Port, aligns strategically with BlackRock's vision. The rationale behind the acquisition is grounded in the outperformance and stability of infrastructure investments, especially during market volatility, contrasting with other private market asset classes. This stability is attributed to infrastructure assets avoiding inflated peaks seen in venture capital and private equity. The move is also aligned with broader economic shifts, such as the carbon transition and digital transformation, where extensive infrastructure build-out is essential. BlackRock's strategic positioning, leveraging GIP's expertise, places the firm at the forefront of opportunities in digital infrastructure and revitalizing the U.S.'s aging transportation infrastructure. While the stock price has not surged post-acquisition announcement, indicating potential investor concerns about integration risks, the long-term outlook appears positive, reinforcing BlackRock's commitment to infrastructure investments and positioning the company strategically in a rapidly evolving market.
Deal Structure
BlackRock acquired 100% of Global Investment Partners (GIP), the largest independent infrastructure manager on the planet, with over $100bn in AUM. The transaction was facilitated through $3bn in cash plus 12 million BlackRock shares. The deal is set to close in the third quarter of 2024.
BlackRock Overview
BlackRock, headquartered in New York City, is the largest Asset Manager in the world, providing investment, advisory, and risk management solutions. Managing an impressive $9.1 trillion in assets as of Q3 in 2023, they serve clients across 100 countries through 70 offices in 30 countries. Acting as fiduciaries, BlackRock invests on behalf of clients, emphasizing financial well-being and supporting local communities. Their mission extends beyond financial gains, focusing on contributing to a more equitable and resilient world. With a commitment to sustainability and the low-carbon transition, BlackRock's investment approach involves understanding client objectives, seeking risk-adjusted returns, and leveraging research and data. They play a vital role in helping millions achieve financial goals, making investing more accessible through products like iShares, and fulfilling their fiduciary responsibility guided by client needs and research. Additionally, BlackRock contributes to resilient economies and economic opportunities through initiatives like the BlackRock Foundation.
Founded in (year): 1988
Number of employees: 19,800
EV: $117.89bn
LTM Revenue: $17.86bn
LTM EBITDA: $6.76bn
Market Cap: $121.03bn
Global Infrastructure Partners Overview
Global Infrastructure Partners (GIP) is a prominent infrastructure investment fund headquartered in New York City, specializing in equity and selected debt investments within the energy, transport, and water & waste sectors. Managing around $100 billion in assets for a global investor base, GIP's equity portfolio companies generate annual revenues exceeding $80 billion and employ approximately 100,000 people. Established in May 2006, GIP has become one of the world's largest infrastructure investors, with offices in major cities worldwide. Their diverse investments include airports, seaports, freight rail facilities, natural resources, and power generation businesses. Noteworthy investments include joint ventures for London City Airport and the acquisition of Gatwick Airport in 2009 and Edinburgh Airport in 2012. GIP's fundraising success is evident in the remarkable growth of their funds, with GIP III raising approximately $15.8 billion and GIP IV securing $22 billion in investor capital.
Industry Overview:
Current Trends:
The infrastructure investment landscape has witnessed significant growth in recent years. Governments worldwide are increasingly prioritizing infrastructure development to stimulate economic growth and address critical needs. Notably, there has been a surge in renewable energy initiatives, such as wind farms and solar projects, in an attempt to support global efforts to combat climate change.
Future Projections:
Emerging markets grapple with significant infrastructure gaps, presenting opportunities for economic efficiency, climate resilience, and inclusive growth. The International Finance Corporation (IFC) emphasizes the role of smart and sustainable infrastructure in connecting people to essential services, spanning urban, sustainable mining, municipal, and energy sectors.
Investment Trends and Focus Areas:
The clean energy shift, driven by renewable power and electric vehicles, dominates investment trends. In 2023, low-emissions power, particularly solar energy, is set to lead electricity generation investments. Despite a profitable year for fossil fuels in 2022, investment in this sector is expected to rise by over 6% in 2023. This dynamic reflects the intricate balance between traditional energy sources and the imperative for a clean energy transition, with cash flow allocated to dividends, share buybacks, and debt repayment (IEA).
Challenges and Opportunities:
The infrastructure industry's trajectory aligns with broader economic and environmental shifts, navigating the carbon transition and digital transformation. While pivotal in addressing global challenges, such as climate change and fostering the digital economy, the industry faces disparities in clean energy investment. A more inclusive global approach is crucial, emphasizing the need to address infrastructure gaps in emerging markets and harness technological innovations for sustainable development.
Strategic Rationale
Overview:
BlackRock will triple its infrastructure assets, and create one of the world’s biggest infrastructure managers, adding to their portfolio with GIP’s investments in Gatwick Airport, London City Airport and Melbourne Port.
The acquisition rationale is deeply rooted in the recent outperformance and stability of infrastructure investments relative to other private market asset classes. Notably, at the end of 2022 and into the first quarter of 2023, real assets—which include infrastructure alongside commodities and oil and gas—have shown stronger returns on average than private equity (PE), venture capital (VC), real estate, private debt, funds-of-funds, or secondaries. Infrastructure investments have demonstrated resilience during periods of market volatility, maintaining strong performance across consecutive quarters. This stability is attributed to the asset class not reaching the inflated peaks seen in VC and PE in 2021, thereby avoiding significant write-downs of unrealized gains when market enthusiasm waned in 2022.
ESG and Digital Transition:
The strategic thrust behind asset managers' growing interest in infrastructure is also aligned with two pivotal economic shifts projected over the next two decades: the carbon transition and digital transformation. Both transitions necessitate extensive infrastructure build-out, from renewable energy projects to modern digital networks, including data centres critical for the economy's digitization. The development and implementation of artificial intelligence as an infrastructure component further illustrate the sector's broad scope and potential.
GIP’s Future:
BlackRock's acquisition of GIP can leverage the significant M&A activity in the digital infrastructure sector, where PE and infrastructure investments accounted for around 90% of all activity in 2022. The deal positions BlackRock to capitalize on opportunities in developing data centres, vital for supporting the digital economy's expansion. Additionally, the urgent need for revitalizing the US's aging transportation infrastructure, with significant public investment required in roads, bridges, and public water and sewage systems, presents a lucrative avenue for infrastructure investments. Historical underinvestment and the pressing need for modernization underscore the compelling investment thesis surrounding infrastructure, particularly in energy, transportation, and data sectors.
Long-term Rationale:
GIP has demonstrated significant success in raising funds and managing a diverse portfolio of infrastructure assets. For example, GIP closed its fourth flagship fund at $22 billion, making it one of the largest infrastructure funds ever raised. This achievement reflects strong investor confidence in GIP's ability to identify and manage valuable infrastructure investments across various sectors, including energy, transportation, water, and waste management. The fund attracted commitments from 240 global limited partners, indicating broad-based support for GIP's investment strategy and management capabilities, suggesting that GIP's valuation at the time of its acquisition by BlackRock has reflected its strong financial performance, strategic portfolio alignment with key industry trends, and the broader market dynamics of the infrastructure investment sector.
However, the stock price of BlackRock has not fallen from the levels that it had reached on the day of the announcement of the deal, perhaps suggesting that their outlook on the acquisition is not as positive as investors had perhaps hoped. We may infer from this that the risks of integration and execution may have been seen to exceed the perceived benefit that BlackRock would achieve.
Despite this, I believe that BlackRock’s strategic positioning to exploit the outperformance and stability of infrastructure investments is a positive for the Asset Manager, creating positive prospects for the company’s infrastructure strategy in the near future. The acquisition of GIP not only broadens BlackRock's asset management capabilities but also strategically situates the firm to capitalize on the clear demand for infrastructure.
Written by Sai Thokala