BlackRock, GIP's $12.55B deal heralds 'golden age' of infrastructure investment

BlackRock Inc. and Global Infrastructure Partners executives touted a $12.55 billion deal that will combine the energy infrastructure investors in a move to take advantage of soaring demand for decarbonization that governments cannot completely fulfill.

Global Infrastructure Partners (GIP), known legally as Global Infrastructure Management LLC, has more than $100 billion of client assets across equity and debt, including an energy business valued at $33 billion. That portfolio spans renewables, gas pipelines and LNG investments.

The transaction, which includes a $3 billion cash consideration and about 12 million BlackRock shares, will create a $150 billion combined business that is the second-largest infrastructure manager globally.

"Growing public deficits, a modernizing digital world, advancing energy independence and the energy transition are driving the mobilization of private capital to fund critical infrastructure," BlackRock founder, chairman and CEO Larry Fink said during the asset manager's Jan. 12 fourth-quarter 2023 earnings conference call.

"The need for upgrading our electrical power grids worldwide is a must," Fink added. "The capital associated with that is going to be enormous."

CFO Martin Small said the deal is also "transformational in terms of the financial and earnings impact to the firm," while GIP founding partner, chairman and CEO Adebayo Ogunlesi endorsed the merger as leading "the golden age of infrastructure investment."

"If you put these two businesses together, we can go to large-cap clients, mid-cap clients, offer them a complete array of solutions," Ogunlesi told analysts and investors. "You want investment-grade debt? We've got it. You want less-than-investment-grade debt? We've got it."

GIP's pension fund, sovereign wealth fund and asset manager clients particularly like investing in infrastructure because of the high yields and low correlation to global public equities.

"They like the fact there's a lot of downside protection, right? Because they provide essential services," Ogunlesi said.

GIP's US energy investments include a stake in the first phase of NextDecade Corp.'s Rio Grande LNG LLC export project, which reached a final investment decision in July 2023, as well as significant interests in EnLink Midstream LLC and its affiliates, which it acquired in 2018 for over $3 billion.

On the renewables side, GIP is also an investor in renewables developer Clearway Energy Inc. In 2022, GIP sold part of its stake in Clearway to French oil major TotalEnergies SE for $1.6 billion in cash, plus a stake in residential solar installer SunPower Corp. In 2020, GIP acquired the renewables developer now known as Eolian LP

Separately, Guggenheim analysts on Jan. 12 referenced a report by industry news service PeakLoad that named GIP as being in negotiations to acquire Eversource Energy's US offshore wind portfolio.

GIP is also in the process of raising its Global Infrastructure Partners V fund, targeting a $25 billion close.

Industry analysts at Keefe Bruyette & Woods called the deal a "game changer for [BlackRock's] alternatives platform and capabilities" in a Jan. 12 note to clients.

The asset manager "paid a premium price for a premium asset; however, given the strong growth profile of the asset class and GIP specifically, and the accretive benefit to margin and fee rate, we view today's announcement positively," the analysts said.

Acquiring GIP should also give BlackRock a leg up among other leading infrastructure investing giants, according to Morningstar analysts.

"We were not too surprised ... having noted the past several years that the firm would need to scale up its alternatives platform to be more competitive with Blackstone Inc. and the other major publicly traded alternative asset managers," the analysts wrote.

The transaction "should put BlackRock on a better footing relative to Apollo Global Management Inc. and KKR & Co. Inc. from a fee-earning [assets under management] perspective, but the company will need to scale up even more to compete on a more equal footing with Blackstone," they said.