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Wednesday, Jul 6, 2022

Houlihan Lokey Expands to Asia in Blockbuster Deal

Houlihan Lokey Inc. is the biggest independent merger and acquisition advisory company on the West Coast.  

And in the United States? Probably, according to analysts who are familiar with the Century City-based company. And, the analysts say, it very nearly has the same kind of scale abroad now, thanks to its biggest acquisition in almost half a century.

Until a month ago, Houlihan Lokey was all about achieving dominance in the United States with its merger and acquisition advisory business and making bolt-on acquisitions in Europe that barely moved the needle.

In early October, the company made a blockbuster acquisition of Japanese rival GCA Corp. for $595 million — its first foray into Asia and a move that gave it a majority position in the M&A advisory business in the technology world — a subsector where it hadn’t been strong.
The GCA deal was big enough to rattle the cages of East Coast rivals as Houlihan Lokey is arguably bigger than all of its New York-based peers in the independent M&A advisory field, including Evercore Inc., Perella Weinberg Partners, Greenhill & Co. Inc., Lazard Ltd., Moelis & Co. and PJT Partners Inc.

“It has turbocharged us,” Scott Adelson, Houlihan Lokey chief executive, said of the GCA addition in an interview with the Business Journal.

 The GCA acquisition is expected to boost total employment at Houlihan Lokey by about a third to 2,000 employees worldwide. 

Reaching the top 10

A study by London-based GlobalData, a data analysis and consulting company, shows that Houlihan Lokey is among the top in the world for the number of M&A deals it advises on.

In the first nine months of 2021, Houlihan Lokey advised on 236 M&A deals valued at $49 billion, up from 140 deals valued at $23.6 billion in the year-ago period, according to GlobalData.

That’s good enough to place Houlihan Lokey at No. 6 in the world on volume of deals, up from the No. 9 spot in the year-earlier period. The firm’s growth significantly outpaces other independent M&A advisory firms — among Houlihan Lokey’s competitors, Lazard is the closest at 173 deals.

Houlihan Lokey’s ranking places it in the same league as bigger firms such as JPMorgan Chase & Co., Goldman Sachs Group Inc., Rothschild & Co., PwC and Morgan Stanley — though they aren’t considered independent.

Merger and acquisition advisory firms are companies that provide guidance to other companies that intend to buy, sell or restructure their firms — making companies like Houlihan Lokey independent because that’s all they do.

Houlihan Lokey’s revenue growth has been impressive since going public six years ago, with the company cobbling together at least 10 acquisitions during that time.

The company has posted a compound annual growth rate of 13.5% for the 2016-2020 period — with 2016 as the first full calendar year after the company’s 2015 initial public offering, observed Michael Brown, who follows the company as managing director of equity research for Keefe Bruyette & Woods in New York. KBW is a unit of St. Louis-based investment bank and financial services giant Stifel Financial Corp.

“I don’t think you’ll see another transaction the size of GCA, but I do think we will see other acquisitions that err on the side of the smaller ones that they typically do,” Brown told the Business Journal. The GCA acquisition, he said, “provides significant geographic diversification for the firm.”

Brown said he expects to see Houlihan Lokey return to smaller bolt-on acquisitions, filling out a subsector need, a regional need or a regional subsector that complements the franchise.

“I think what we’ll see is some small-type acquisitions, probably still focused on Europe,” he added.

‘Critical mass’

Adelson, who has been with Houlihan Lokey since 1987, has been locked on a strategy of buying firms rooted in Europe to give the firm credible size and bolster its position in the United States.
The decision to buy GCA also gives Houlihan Lokey an edge in the technology M&A advisory business with a majority of its revenues coming from Europe and the United States despite GCA’s Japanese headquarters, according to analysts.

“We are the most active M&A adviser in the United States and have been for years and have been in the top 10 in Europe and globally,” Adelson said. “But this (GCA acquisition) kind of catapulted us. It did create a true critical mass in Europe where we are now the second most active investment banking M&A adviser in Europe. Rothschild is No. 1 and has been for, like, 150 years.”

Analysts agree.
“It’s the largest transaction that they’ve ever done,” said Brown. “It’s got a more global footprint than any acquisition they’ve ever done. It’s more global than Houlihan Lokey itself.”

Wall Street analysts believed Houlihan Lokey would go on a buying spree after it raised nearly $200 million in capital a few months after the pandemic shut down the world. But valuations on M&A advisory businesses didn’t come down, even as M&A activity nearly dried up.

Houlihan Lokey had lagged in the high-tech area but got a toehold when it bought MVP Capital last year, the analysts said.

The purchase of London-based Baylor Klein this past summer — its first acquisition in nearly a year since MVP — is Houlihan Lokey’s fifth in Europe.

The recent purchase of GCA, said Harte, gives Houlihan Lokey “instant scale” in Asia “that they didn’t have before” and helps them gain “market weight in technology” M&A advisory deals.

“It’s the biggest deal they’ve done, and it makes a lot of sense,” said Harte.

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