Houlihan Lokey (HLI): A Trusted Advisor Navigating Complex Transactions

Published on March 11, 2025 | Ticker: HLI

Houlihan Lokey, Inc. (HLI) is a global investment bank that has established itself as a leader in providing financial advisory services to a diverse clientele. With a history spanning over four decades, the firm has cultivated a reputation for its expertise in Corporate Finance, Financial Restructuring, and Financial and Valuation Advisory. As the company continues to navigate the evolving financial landscape, its strategic approach and client-centric focus have been instrumental in driving its growth and solidifying its position as a trusted advisor.

Business Overview and History

Houlihan Lokey's origins trace back to 1972, when it was founded in Los Angeles as an independent investment banking firm focused on providing financial advisory and valuation services. Starting with a small team of financial professionals, the company quickly established itself as a trusted advisor, offering unbiased counsel to clients on mergers and acquisitions, corporate finance, and financial restructuring matters.

Throughout its history, Houlihan Lokey has demonstrated remarkable resilience, successfully weathering several economic downturns, including the financial crisis of 2008-2009. The firm's ability to maintain its focus on providing high-quality, independent advice during challenging times has been a key factor in its long-term success.

A significant milestone in the company's history came in 2015 when Houlihan Lokey went public, listing its shares on the New York Stock Exchange. This move allowed the firm to further invest in its people, processes, and technology, enhancing its service offerings and positioning it for continued growth. The public listing also provided the company with a valuable currency to pursue strategic acquisitions, enabling it to add new capabilities and expand its geographic reach to better serve its clients.

Despite its growth and expansion, Houlihan Lokey has remained steadfast in its commitment to its roots as an independent, conflict-free advisor. The firm's culture of collaboration and prioritizing client interests has been instrumental in building long-standing relationships with a diverse client base and establishing itself as a leader in the middle-market investment banking space.

Financials and Performance

Financials Houlihan Lokey's financial performance has been consistently strong, with the company reporting steady revenue growth and profitability over the years. In the most recent fiscal year (2024), the firm generated revenues of $1.91 billion, a 5.5% increase from the previous year. Net income for the same period stood at $280.3 million, reflecting the company's ability to deliver value to its clients and shareholders. Operating cash flow reached $328.5 million, while free cash flow amounted to $261.7 million.

In the most recent quarter (Q3 2025), Houlihan Lokey reported impressive results with revenue of $634.4 million, up 24% year-over-year, and net income of $95.3 million, a 35% increase compared to the same quarter last year. The company's adjusted earnings per share for the quarter stood at $1.64, representing a 34% increase from the previous year.

Liquidity

The company's financial strength is further evidenced by its robust balance sheet, with a current ratio of 1.32 and a quick ratio of 1.32 as of March 31, 2024. Houlihan Lokey's liquidity position, as measured by its cash and cash equivalents, amounted to $721.2 million, providing the firm with the flexibility to capitalize on strategic opportunities and weather potential market disruptions. The company's debt-to-equity ratio stands at a conservative 0.23, indicating a strong financial position. Additionally, Houlihan Lokey has access to a $100 million revolving credit facility, which remained undrawn as of March 31, 2024, further bolstering its liquidity position.

Segmental Performance

Houlihan Lokey's business is organized into three core segments: Corporate Finance, Financial Restructuring, and Financial and Valuation Advisory. Each of these segments has contributed to the company's overall success, demonstrating the breadth and depth of its advisory capabilities.

In the Corporate Finance segment, the firm has consistently executed on a high volume of successful transactions, leveraging its industry expertise and global reach to serve both strategic and private equity clients. During the three months ended December 31, 2024, the Corporate Finance segment revenues were $421.6 million, a 36% increase compared to the same period in the prior year. This increase was driven by a higher number of closed transactions, facilitated by favorable market conditions for M&A and capital markets deals. The segment profit was $131.55 million, up 41% year-over-year, as the increase in revenues outpaced the growth in expenses.

The Financial Restructuring segment has capitalized on the elevated market demand for its services, as companies navigate the challenges posed by higher interest rates and evolving economic conditions. For the three months ended December 31, 2024, the Financial Restructuring segment revenues were $130.94 million, a 2% increase from the prior year period. This increase was driven by higher transaction volumes, offset by a decrease in the average fee per closed transaction. The segment profit was $44.21 million, up 2% compared to the same quarter last year, as the revenue growth was partially offset by an increase in expenses.

The Financial and Valuation Advisory segment has also been a key driver of Houlihan Lokey's growth, providing a diverse range of services, including fairness opinions, solvency opinions, and other financial advisory solutions. The segment's performance has been buoyed by the firm's ability to adapt to changing market dynamics and deliver innovative solutions to its clients. In the three months ended December 31, 2024, the Financial and Valuation Advisory segment revenues were $81.88 million, a 14% increase from the prior year period. This increase was driven by a higher number of fee events and an increase in the average fee per event, as the M&A market improvements impacted various service lines within FVA. The segment profit was $23.34 million, up 63% year-over-year, as the revenue growth outpaced the increase in expenses.

Growth Strategies and Outlook

Looking ahead, Houlihan Lokey remains focused on executing its growth strategies, which include expanding its global footprint, enhancing its service offerings, and selectively pursuing strategic acquisitions. The company has demonstrated a track record of successfully integrating acquired businesses, leveraging their expertise and client relationships to drive synergies and further strengthen its market position.

Moreover, Houlihan Lokey's commitment to innovation and its ability to anticipate and address the evolving needs of its clients have been instrumental in positioning the firm for continued success. As the investment banking landscape continues to evolve, the company's resilience, adaptability, and client-centric approach are expected to be key drivers of its long-term growth and profitability.

The company has expressed optimism about the balance of the current fiscal year, citing expectations that markets will continue to improve given a stronger macro environment. For the Corporate Finance business, key metrics including close rates, time to close transactions, new business generation, and transaction volume continue to improve compared to the same period last year. In Financial Restructuring, Houlihan Lokey continues to generate enough new business to maintain its backlog and expects the restructuring market to remain elevated for longer than anticipated a year ago. The Financial and Valuation Advisory segment has seen strength across both cyclical and non-cyclical businesses, with many of the same factors affecting the optimism for the corporate finance business present in the FVA business as well.

Looking beyond the current fiscal year, Houlihan Lokey's outlook for fiscal 2026 is positive, citing improving M&A market sentiment, an increase in private equity activity, and continued strength in the restructuring business as encouraging indicators for continued growth.

Risks and Challenges

While Houlihan Lokey has demonstrated impressive resilience, the firm is not immune to the challenges faced by the broader investment banking industry. Factors such as macroeconomic uncertainty, regulatory changes, and intensifying competition can pose risks to the company's operations and financial performance.

Additionally, the firm's reliance on the successful completion of transactions, particularly in its Corporate Finance and Financial Restructuring segments, exposes it to potential volatility in its revenue streams. The company's ability to manage these risks and adapt to changing market conditions will be crucial in maintaining its competitive edge and delivering consistent value to its stakeholders.

Industry Trends

The financial advisory industry has seen steady growth, with a compound annual growth rate (CAGR) of approximately 5-7% over the past several years. This growth has been driven by increased M&A activity, corporate restructurings, and demand for valuation and other advisory services. Houlihan Lokey's diversified business model, with its three complementary segments, has allowed the company to navigate market conditions effectively and capitalize on these industry trends.

Conclusion

Houlihan Lokey's rich history, financial strength, and diversified service offerings have positioned the firm as a leader in the investment banking industry. The company's commitment to providing high-quality advisory services, coupled with its global reach and industry expertise, have been instrumental in driving its growth and solidifying its reputation as a trusted advisor to its clients. As Houlihan Lokey navigates the evolving financial landscape, its strategic vision, adaptability, and relentless focus on client success are expected to be key factors in its continued success. With a strong balance sheet, robust liquidity position, and positive outlook across all its business segments, Houlihan Lokey is well-positioned to capitalize on growth opportunities and deliver value to its stakeholders in the coming years.

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