Several years ago, I heard a presentation from Laurence Fink, the mastermind behind the asset management giant, BlackRock (NYSE: BLK). At the time, he gave some frank advice; that is, he warned that investors needed to be very cautious.
Of course, it was spot-on (and saved me lots of money). And, I'm sure Fink's investors also appreciated the counsel.
Well, this week BlackRock became the king of asset management because of its $13.5 billion acquisition of Barclays Global Investors (NYSE: BCS). In all, the assets under management will now amount to $2.8 trillion.
It's really stunning, actually. Keep in mind that BlackRock got its start back in the late 1980s, with about $1 billion under management.
By and large, there are two critical factors for a successful asset manager: good advice and scale. The former has always been the case for BlackRock. And now, with the BGI deal, BlackRock will have enormous scale.
What's more, BGI also brings an important asset class: the exchange traded fund (ETF). This vehicle has exploded in popularity because of the inherent flexibility and low costs. Oh, and BGI has about half of the market for ETFs.
However, there are certainly risks. If history is any guide, the complexities of mega deals can be extremely problematic. And, this is especially the case in the financial services industry, which relies heavily on key people.
Then again, Fink has demonstrated a fairly good track record with M&A. He structured a deal for SSRM Holdings in 2005 and purchased the asset management business of Merrill Lynch in 2006. Besides, Fink has weathered the financial crisis incredibly well.
So, if there is anyone who can pull off the BGI transaction, it would definitely be Fink.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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