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“Integration begins with our first conversation, before we even come up with a valuation”. It sounds like Larry Fink of BlackRock might be freestyling lyrics for the most boring Christmas rap video ever, but he’s actually describing his process for making acquisitions.
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BlackRock recently bought private credit manager HPS Investments, and took over Global Infrastructure Partners earlier this year. Both of these deals brought in a few hundred billion dollars of assets under management (which is a lot of money, but not necessarily a lot of money for BlackRock). But much more importantly, they helped Larry Fink extend the product range into private credit, and to do so considerably more quickly than he would have been able to by hiring people and building a business internally from the ground up.
But of course, this strategy only works if the investment talent sticks around. Or as Larry Fink might put it, to maintain the motivation the integration conversation has to cover the remuneration situation.
The remuneration situation seems to have been intense. In the HPS and GIP acquisitions, the retention cash was substantial indeed. A BlackRock presentation to analysts and investors puts it at $1.3bn. That’s a bit more than 5% on top of the total cost of the deals themselves (HPS was $12bn and GIP $12.5bn). It’s also an average of $1m per employee acquired. And not only will managers get this retention money, but they will also continue to earn carried interest on their existing funds.
Of course, the extra retention payments aren’t cash up front – there would be no purpose to them if they were. There's a five-year vesting schedule. The former owners of HPS and GIP are
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