- BlackRock agreed to buy Paris-based alternative investment management platform eFront for $1.3 billion last week.
- Despite the big pricetag, the deal is ‘not something that moves the needle,’ analysts told Business Insider.
- The company has long been pushing into technology and illiquid alternatives, like real estate and private equity, as it diversifies away from lower-revenue products like equities funds.
BlackRock’s latest technology deal comes with a big price tag – $1.3 billion – but not much surprise for those watching the company. Instead, the acquisition underscores how the $6 trillion company has been positioning itself as more than just a money manager.
On Friday, BlackRock said it would buy eFront, a Paris-based alternative investment management platform in a $1.3 billion cash deal. eFront is used by over 700 clients in 48 countries to manage alternative investments like private equity and real estate.
BlackRock executives have long touted the firm’s growth in technology and illiquid alternatives, as the asset manager seeks to diversify from lower-revenue parts of its business like equity funds. While technology contributed 6% of the company’s revenue last year, it’s one of the fastest-growing platforms: technology service revenue increased 19% last year on the heels of strong demand for investment management platform Aladdin and digital wealth technologies.
The eFront deal adds to BlackRock’s footprint in technology for institutional investors. Aladdin is already used by more than 200 institutional investors globally, and analysts said that eFront’s purchase could make it the "Aladdin for alternatives."
"Broadly it’s not something that really moves the needle," said Autonomous Research analyst Patrick Davitt, who deemed the deal "not surprising."
But the eFront buy does further the company’s technology ambitions, he said. BlackRock has evolved from a traditional money manager to a technology platform for institutional investors and those advising individuals.
"They’ve built this entire technology infrastructure to better serve the people that touch their clients without having to touch the clients themselves," Davitt said. "As they look to grow the alternatives business, it’s a natural fit to have something that does that for the clients on the alternatives side and to help them manage their alternatives allocations better."
Argus Research analyst Steve Biggar said financial technology firm Envestnet was a better example of a needle-moving technology deal. In November, the asset manager bought a 4.9% stake in Envestnet for $123 million. While that transaction was smaller than the eFront deal, it puts BlackRock in front of more than 90,000 financial advisors.
At a recent investor dinner, BlackRock chief executive Larry Fink and chief financial officer Gary Shedlin said the firm’s top three growth areas are technology, retirement solutions, and alternatives, according to Morgan Stanley analysts.
Aladdin, for example, has a "long runway for growth," with opportunities to expand in private markets and wealth management, Morgan Stanley said. BlackRock is also bullish on M&A focused on technology.
"It’s about adding capabilities and securing a first mover advantage," the Morgan Stanley analysts wrote in a note last week. The firm "would consider transactions even if not accretive for the first few years."
Argus Research’s Biggar said BlackRock has done well with "tuck-in acquisitions" in technology, like eFront, which will see 700 employees join BlackRock.
In the last two years, the firm has invested in the following fintech deals, in addition to Envestnet:
- iCapital: led the 2017 funding round for the platform, which gives individual investors access to alternative investments
- Scalable Capital: picked up a stake in a European digital investment manager in 2017
- Cachematrix Holdings: bought a software platform that helps companies invest their cash in 2017
- Acorns: participated in the January funding round for the consumer investing app
Outside of M&A, the firm is also working with partners, like an alliance with Microsoft announced in December, to create technology-driven investment platforms. The companies are building a tool for retirement savings that will be offered through employers.
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