BlackRock’s [BLK] share price has been on an upward trajectory since the sell-off earlier this year. Despite a dip at the end of September, the stock rose to an intraday high of $666.64 on 19 October before slumping towards the end of the month again. BlackRock’s share price has since hit a new intraday high of $718.85 on 27 November, boosted by news of its $1.05bn takeover of indexing specialist Aperio.
Shares in the world’s largest asset manager began the year at $510 before dropping to $327.42 on 23 March as the coronavirus pandemic rocked the markets. BlackRock’s share price recovered over the next few months to reach an intraday high of $609.69 on 2 September before dipping to $535.05 on 24 September.
The stock’s fall reversed by early October to hit a new intraday high, boosted by strong third-quarter results. The firm beat on both top and bottom lines, with revenue climbing 18% year-over-year to $4.37bn and earnings jumping 24% to $8.87 per share.
Assets under management climbed 12% from the year-ago period to a record $7.81trn, driven by soaring demand for iShares ETFs as investors looked for less expensive passive strategies.
BlackRock taps up wealthy businesses
BlackRock’s share price has rallied 19.3% so far this month to a high of $715.11 on 27 November. The main catalyst for the rise was the announcement of the Aperio deal on 23 November.
BlackRock said the acquisition from private equity firm Golden Gate Capital would enhance the personalisation of its services to wealthy clients, from individuals to institutions. Aperio has pioneered so-called direct indexing. These tax-optimized index equity separately managed accounts (SMAs) are designed to reflect a client’s personal risk, tax, value and ESG preferences.
The US retail and wealth SMA market is worth $1.7trn in assets and is growing at around 15% per year, the firm said alongside the statement. Aperio is outperforming the industry, with $36bn in SMAs and a growth rate of nearly 20% over the last five years.
BlackRock, which already provides SMAs for US wealth management-focused intermediaries, said the acquisition would boost its SMA assets by around 30% to over $160bn.
“The wealth manager’s portfolio of the future will be powered by the twin engines of better after-tax performance and hyper-personalisation,” Martin Small, head of the firm’s US wealth advisory business, said. “The combination [of BlackRock and Aperio] will bring institutional quality, personalised portfolios to ultra-high net worth advisors.”
“The wealth manager’s portfolio of the future will be powered by the twin engines of better after-tax performance and hyper-personalisation. The combination [of BlackRock and Aperio] will bring institutional quality, personalised portfolios to ultra-high net worth advisors” - Martin Small
While investors cheered the deal, the purchase price has raised eyebrows
BlackRock is estimated to be paying about 50 times earnings or 20 times revenues to acquire the company, Michael Cyprys, an equity analyst at Morgan Stanley, told the Financial Times, which is a hefty premium to the market considering that the S&P 500 financials sector was trading at 17.1 times net earnings on 25 November.
However, Cyprys concluded that it would likely be a price worth paying.
“While the purchase multiples appear rich versus publicly traded asset managers, we note that BlackRock is paying for an in-demand, highly complementary capability and for a business that’s organically growing at a 20%+ rate and which accelerates the timetable for BlackRock to grow their SMA market presence,” he said.
Daniel Fannon, equity analyst at Jefferies, also believes that the deal’s benefits of building valuable scale in the SMA market outweigh what will be “modestly dilutive on a GAAP basis” in the first year, according to Nasdaq. “Aperio’s track record in ESG investing also complements BlackRock’s increased focus and success in this area,” he added.
“Aperio’s track record in ESG investing also complements BlackRock’s increased focus and success in this area” - Daniel Fannon, equity analyst at Jefferies
The asset management barbell
According to MarketScreener, 17 analysts make up the consensus buy rating on the stock and have an average target price of $719.06.
Morgan Stanley gave BlackRock’s share price an overweight rating on the 14 October with a $686 target price, MarketBeat reports. A day later, Deutsche Bank gave a buy rating and issued a target price of $795.
“We believe BlackRock is best positioned on the asset management barbell given its leading iShares ETF platform, multi-asset & alternatives combined with technology/Aladdin offerings that should drive 10% EPS annual growth between 2020 and 2022,” Cyprys told the Financial Times.
“We believe BlackRock is best positioned on the asset management barbell given its leading iShares ETF platform, multi-asset & alternatives combined with technology/Aladdin offerings that should drive 10% EPS annual growth between 2020 and 2022” - Michael Cyprys, an equity analyst at Morgan Stanley
BlackRock looks to be laying the foundations of a new investment scene. One centred on personalisation in ESG investing as investors seek better ways of helping the planet turn green. There will also likely be an increasing shift to passive to smooth out the economic uncertainty ahead.