BlackRock (BLK), the top-tier money management firm, showed that large M&A transactions can be closed, even in a tight economy, if the buyer has a sterling reputation and long-term record of significant success.
Barclays (BCS) put its investment unit up for sale, and Blackrock bought it for $13.5 billion.
The deal is particularly impressive since the last year has been one of awful results in the money management business. Falling markets have massacred fund company earnings. Some of the largest publicly traded operations in the sector have lost money and most of their market values.
The transaction calls for BlacRock to come up with $8.6 billion in cash. The rest of the payment will be made in company stock. Barclays will end up with 19.9% of the much larger BlackRock. According to Bloomberg, “Financing will include $2.8 billion from the sale of equity to institutional investors and as much as $2 billion in loans from Barclays and other banks.” The new company will manage $2.7 billion in assets.
The deal will look brilliant if the equity markets continue to recover. The transaction will face trouble if the markets sell off again and equities prices stay down for a long period. The risk that BlackRock is taking is that the economic recovery that is underway will sustain itself and that investors will put more money back into the markets.
BlackRock is making a bet and the recovery is the only thing that can reward it.
Douglas A. McIntyre
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