BlackRock’s big deal this week has little to do with its core
business, the
one it’s known for: managing $10 trillion of our money. Financial-data
providers like Preqin, which BlackRock is buying for
$3.2 billion, are arms dealers, not warlords. They’re more valuable as
neutral brokers than as a secret sauce for any one fund manager.
This is about BlackRock’s other business, one that it would
like its stockholders to pay more attention to. Its Aladdin software,
which lets money managers analyze and spot risks in their portfolios,
accounts for a small but growing slice of BlackRock’s revenue, 8% last
year. What began as BlackRock’s own central nervous system — this
being finance, its name is obviously an insane
acronym — was offered to outside firms starting in the
1990s.
Aladdin is to BlackRock what cloud provider AWS is to Amazon: an
internal tool that turned into a serious venture in its own right —
and one that is in a different, more valuable business than its
corporate owner. If stockholders valued Aladdin’s revenue like they
value that of S&P Global and Moody’s, it would be worth an extra $10
billion in market capitalization to BlackRock. That’s another way of
saying that Aladdin could be more valuable outside BlackRock than
inside, which is why every few years, there’s some spinoff chatter
that BlackRock quashes quickly.
The other path is to grow it and try to get shareholders to revalue
the entire company, bit by bit. Thus this week’s deal. That’s hard to
do, and Preqin is a drop in the bucket, but it is strategic M&A at its
absolute purest.
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