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BlackRock Strengthens Cash Management, To Buy Cachematrix

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With an intention of further strengthen its cash management division, BlackRock Inc. (BLK - Free Report) signed a deal to buy Denver-based Cachematrix Holdings LLC. The deal is part of the company’s efforts to capitalize on technology solutions, which will enable it to leverage “its global platform for the benefit of clients and shareholders.”

While the financial terms were not disclosed, the transaction is expected be completed in third-quarter 2017 (subject to customary closing conditions). The deal is not likely to have any material impact on BlackRock’s financials. Nevertheless, with better cash management capabilities, the company’s revenues are surely going to rise going forward.

Cachematrix is a provider of simplified cash management process to banks. It supports nearly $200 billion worth of client assets through business relationship with some of the biggest global banks including Bank of America Corp BAC, Morgan Stanley MS and HSBC Holdings plc HSBC.

Why BlackRock is Focused on Improving Cash Management Business

Before digging into BlackRock’s reasons for prioritizing cash management business, let’s understand why managing cash is of greater importance for banks and other financial institutions.

Since the financial crisis, banks are required to meet stringent capital requirements with an aim to avert another downturn. This necessitates banks to do away with deposits that require them to hold additional capital. Same way, businesses strive hard to place their cash that will earn strong returns as the Federal Reserve’s dovish policy resulted in lower yields from debt.

Therefore, the cash investors require tools that help them manage liquidity and risks. This is where BlackRock’s cash management division comes into picture.

BlackRock already provides financial technology solutions through Aladdin, iRetire, Aladdin Risk for Wealth Management and FutureAdvisor. As of Mar 31, 2017, assets managed by the company’s Cash Management division were $388.9 billion.

With the evolving need to better manage cash, the company plans to provide comprehensive cash management solutions through the acquisition of Cachematrix. Specifically, a software tool build by Cachematrix will enable BlackRock to provide its clients with easy facility to manage cash and short-term debt held.

George Hagerman, Chairman and Founder of Cachematrix said, “Together we will broaden our reach with best-in-class financial technology and world-class investment products to help clients address their liquidity needs.”

The deal will further strengthen Aladdin operation in “advising companies on how to invest their cash” and capitalize on BlackRock’s liquidity management capabilities. The company intends to integrate some of the Cachematrix’s feature with Aladdin.

Technology-Driven Efforts to Support Profitability

The company is looking forward to more such transactions that will further strengthen its technological and investment proficiency. BlackRock also intends to restructure its traditional actively managed equities business and improve product offerings per changing client needs.

With this is mind, the company will launch BlackRock Advantage “series of core alpha products,” cut fees, slash jobs and change asset mix. As part of its restructuring efforts, the company has been working to replace the traditional stock picking strategy with an automated one.

BlackRock plans to focus more on technology and data analytics and make investments in data-based technology to improve the funds’ performance. Driven by such efforts, the company’s profitability should improve over time.

Shareholders seem to be bullish on the company’s efforts. Over the last three months, shares of BlackRock have gained 11.3%, outpacing the Zacks categorized Investment Management industry’s rally of 6.7%.

Also, analysts are optimistic about BlackRock’s prospects. The company has been witnessing upward estimate revisions.

The Zacks Consensus Estimate for both 2017 and 2018 rose nearly 1% over the last 60 days. This supports the stock’s Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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