(Bloomberg) -- BlackRock Inc. agreed to buy HPS Investment Partners in an all-stock deal valued at roughly $12 billion, a purchase that will propel the world's largest asset manager into the highest ranks of private credit.
HPS founders Scott Kapnick, Scot French and Michael Patterson will lead a new private financing solutions business unit with BlackRock as the company seeks to offer the full range of public fixed-income and alternative credit funds to clients, the asset manager said Tuesday in a statement.
"We are delivering across public and private markets, equity and debt," BlackRock Chief Executive Officer Larry Fink said on a call with analysts after the announcement. "The blending of public and private in today's reality is a part of the entire market."
Fink said HPS was the "only one" in the fast-growing private credit industry that BlackRock leadership considered for an acquisition. With HPS, BlackRock said it would become a top 5 private credit firm with about $220 billion in assets and room to grow with insurance clients and in investment-grade private debt.
BlackRock shares rose 0.9% to $1,029.02 at 9:39 a.m. in New York trading.
The transaction is expected to be completed in the middle of next year, pending regulatory approval. That would leave BlackRock, which manages $11.5 trillion, with almost $600 billion of alternative assets. About a quarter of the deal will be paid in five years, and additional BlackRock shares are possible based on performance. The deal also includes a retention package of as much as $675 million for HPS employees.
BlackRock said it expects to retire for cash, or refinance, approximately $400 million of existing HPS debt.
The deal caps a year of Fink's efforts to transform the world's biggest manager of public stocks and bonds into a formidable player in private assets coveted by pensions, insurers, sovereign wealth funds and rich individuals. With HPS and its earlier purchase of Global Infrastructure Partners, BlackRock has won the two largest-ever acquisitions of alternative asset managers in less than a year.
In October, the company completed the $12.5 billion GIP acquisition, making BlackRock one of the largest managers of infrastructure assets with about $170 billion. It's already in the final stages of completing a £2.55 billion ($3.25 billion) deal for private-markets data provider Preqin.
HPS manages $148 billion of client assets, making it one of the largest independent managers in the surging private credit market. BlackRock expects the deal to increase its private markets fee-paying assets under management by 40%, and its management fees by 35%.
Founded in 2007, the firm bought itself out of JPMorgan Chase & Co. in 2016 in a deal that valued it at almost $1 billion. HPS had been pursuing a potential initial public offering that would have valued it at $10 billion or more, Bloomberg reported in September.
With HPS, BlackRock's alternative-investments business will be larger than Carlyle Group Inc.'s and begin to rival — at least in size — private-asset leaders such as KKR & Co. and Apollo Global Management Inc.
Blackstone Inc. is still considerably larger, with about $1.1 trillion of assets at the end of the third quarter.
Perella Weinberg Partners and Morgan Stanley served as financial advisers to BlackRock, while JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Deutsche Bank AG, BNP Paribas SA, and Royal Bank of Canada advised HPS.
--With assistance from Peter Eichenbaum.
(Adds Fink's comments in third and fourth paragraphs.)
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