Larry Fink makes racy salvo in private markets war
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Neil Unmack
LONDON, July 1 (Reuters Breakingviews) -There are few successful dealmakers in the traditional asset management industry, but Larry Fink may be the exception. The BlackRock BLK.N CEO’s 2009 acquisition of Barclays Global Investors made his firm a key player in the booming market for exchange-traded funds. Fink’s latest foray, the $3.2 billion purchase of data firm Preqin announced on Sunday, may be aiming for something similar with alterative assets like private equity. But a rich price raises the bar for M&A success.
The Preqin deal is just the latest move by the $117 billion asset manager into the fast-growing private markets sector, evidenced most recently by the $12.5 billion acquisition of Global Infrastructure Partners. Preqin sells data including returns and dry powder for 190,000 private funds. It boosts BlackRock’s presence in technology and data services, which typically garner a higher valuation multiple than traditional stock-picking businesses.
In the short term, incorporating that data into BlackRock's existing risk management products could allow Fink’s institutional-investor customers to better analyse their portfolios of public and private funds. For example, BlackRock’s Aladdin tool can scour clients’ stock and bond holdings for exposure to, say, surging oil prices. Preqin, along with BlackRock’s other past data purchase eFront, would allow the firm to do the same for private holdings too. Further out, Fink could also launch more innovative products, like alternative-asset indexes or even passive funds.
Fink faces a long wait for returns, though. Preqin expects to generate $240 million of revenue this year. Assume it can keep growing sales by 20% annually and boost operating margins to 29% — in line with the average of peers Factset Research Systems FDS.N, London Stock Exchange Group LSEG.L (LSEG) and Morningstar MORN.O. Operating profit would be $173 million in 2029. Using a 25% tax rate, that implies a 4% return on invested capital after five years.
To create value, Fink probably needs a greater than 9% return, which is the average cost of capital for Preqin’s peers tracked by GuruFocus. Assuming the same 29% operating margin, revenue would need to reach $1.3 billion to hit that threshold, a roughly fivefold increase. So far, BlackRock has not put a number on any cost savings or revenue boosters.
The outlook for private market assets is murky: higher rates may depress returns on private equity funds, hurting demand and forcing managers to cut costs or merge. Moreover, the market for financial data is becoming increasingly competitive, with big players like S&P Global SPGI.N and IHS Markit merging, and LSEG buying Refinitiv. Fink may need to prepare for a bumpy ride.
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CONTEXT NEWS
BlackRock on June 30 said it had agreed to buy UK-based financial data company Preqin for 2.6 billion pounds ($3.2 billion) in cash.
The deal increases BlackRock’s exposure to private-market data, like the performance of buyout and infrastructure funds, a market the group believes to total $8 billion.
Preqin expects to generate $240 million of revenue in 2024, and has grown sales at an annual rate of 20% over the last three years, according to the statement.
BlackRock shares were up 0.6% to just under $792 as of 0940 ET on July 1.
BlackRock vs. rivals since acquisition of BGI in 2009 BlackRock vs. rivals since acquisition of BGI in 2009 https://reut.rs/3L4IbNp
Editing by Liam Proud and Streisand Neto
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