Houlihan Lokey eyes investment banking growth in 2018

Houlihan Lokey, a boutique investment bank that has over 1,250 staff globally, has been expanding, but its current employees are not going anywhere.

It claims that 75% of new associates, 65% of vice presidents and 65% of those making it to managing director are all internal promotions. What's more, the average tenure of its MDs is 12 years – an eternity on Wall Street. The Los Angeles-based firm has been expanding – it had 600 front office staff in 2012, a figure that rose to 872 at the beginning of this year and 893 at the end of the third quarter.

Specifically, Houlihan Lokey recently hired Reinhard Koester as an MD and the co-head of FIG from Barclays Capital, where he was the co-head of specialty finance, and James Wolf, a 30-year EY veteran who is now an MD in the tax and financial reporting valuation group. Both are based in the New York office and have been hiring junior bankers to fill out their respective teams.

Matthew Spencer, the chief human capital officer of Houlihan Lokey, who joined the firm out of business school as an investment banking associate in 2007, was a senior VP before taking on his current role in early 2015, says a major focus for this year has been building its corporate finance team.

“Corporate finance has been the biggest driver of headcount growth over the last five years, and that is a function of the market,” Spencer says. “We’ve been in a positive economic cycle of extended growth for seven-plus years since the last downturn, and the majority of our headcount growth has been to support the businesses that do well in that cycle [M&A and capital raising].”

The bank's corporate finance group incorporates both M&A advisory services and capital markets, a group that currently has 35 professionals globally who raised nearly $7bn through more than 30 transactions over the past year. It acts as an arranger, rather than an underwriter as the equity capital markets divisions at larger banks usually do. Year-to-date Houlihan Lokey has announced 177 M&A deals announced globally, 134 of those in the U.S., with the majority in the middle-market space. Of the deals whose value was disclosed, the average deal size was $524m globally and $395m in the U.S. so far this year, according to Thomson Reuters.

“We’ve undergone a significant expansion of our capital markets business,” Spencer says. Raising capital has become highly complex over the last decade because there are so many alternative pockets of capital out there, including hedge funds, BDCs, leveraged loan funds and other hyper-specialized debt and equity funds.

“There's an infinite number of ways to structure a deal, so we’re building an experienced team of senior officers with deep relationships and execution expertise to help companies navigate those alternative sources of capital and best optimize their capital structure.”

Houlihan Lokey is better known for its restructuring division than its corporate finance work, but while headcount is growing in this area, it's not been the main focus.

Counterintuitively, Houlihan Lokey’s Financial Restructuring group has also continued to add staff throughout the current economic cycle.

“Across sectors such as Oil & Gas and Retail, there’s been a lot of distress,” Spencer says. “Over the last several years, we’ve been building out and investing in those areas, and across the board, we want to continue to build industry expertise."

The firm also expanded into a new practice area in January with the acquisition of Black Stone IP, a boutique investment bank focused on valuing and trading patent and other intellectual property (IP) assets, which is part of the firm’s Financial Advisory Services business. The acquisition added five officers, including practice co-heads and MDs Elvir Causevic and Edmund Fish.

In June, the bank added three more officers externally – John Hudson and Brent Reynolds joined as a director and senior VP, respectively, and Scott Womack joined in July as a VP – and moved two current employees into the practice.

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