Under a bloated stock market, a lot of companies have chosen the initial public offering (IPO) route in 2015. Among the upcoming IPOs, Houlihan Lokey (NYSE:HLI) is worth looking at. Should you invest in Houlihan Lokey’s IPO? Let’s see. (Source: The Securities and Exchange Commission, August 7, 2015.)
Houlihan Lokey is an independent global investment bank founded in 1972. The company specializes in mergers and acquisitions, financings, financial restructurings, and financial advisory services. It has offices in the U.S., Europe, Asia, and Australia. In the past several years, Houlihan Lokey served 800 clients on average annually. Its clients range from closely-held companies to Fortune Global 500 corporations.
Houlihan Lokey’s IPO date is Thursday August 13th. It would list its shares on the New York Stock Exchange (NYSE) under the ticker symbol “HLI.”
Houlihan Lokey’s IPO price is set between $22.00 and $24.00 apiece. At midpoint, the IPO would raise $300.4 million. However, all shares issued are sold by selling stockholders, Orix USA and certain employees, and members of the company’s management. Houlihan Lokey will not receive any proceeds from the IPO.
The company operates in three segments: corporate finance, financial restructuring, and financial advisory services. Most of the company’s revenue comes from providing advisory services on transactions. Growth in revenue has been solid for Houlihan Lokey. Its total fee revenue went from $520.2 million in fiscal 2013 to $592.5 million in fiscal 2014, and to $680.9 million in fiscal 2015. Net income increased as well; from $58.9 million in fiscal 2013 to $61.4 million in fiscal 2014, and to $79.9 million in fiscal 2015.
Through the IPO, the company could increase its brand awareness. Because the company’s name does not appear very often in high-profile deals compared to the bulge brackets, it has a relatively low profile. By going public, the company could improve its brand awareness and also attract talented bankers to join their team.
Houlihan Lokey is Small But Durable
As one of the oldest investment banking boutiques, Houlihan Lokey has a proven track record of success. It had survived many ups and downs in the market, including the financial meltdown in 2008 when the huge investment bank Lehman Brothers went bankrupt. Surviving and striving in difficult times gives the company credibility among its clients and investors.
Despite keeping a lower profile than its competitors, Houlihan Lokey has earned many awards over the years. In 2014, the firm claimed the title of the number one M&A advisor for U.S. transactions under $5.0 billion. Moreover, Houlihan Lokey has been the number one M&A advisor for U.S. mid-cap transactions every year for the last nine years. In 2013, it was recognized as the Global Restructuring Advisor of the Year by the International Financing Review and European Restructuring House of the Year by Financial News.
The company has found its market and is able to profit from it. Houlihan Lokey works with smaller companies on deals that the big investment banks would not do. It also charges lower fees than many of its competitors. In addition, the company offers a “fairness opinion” service which provides valuation on transactions but does not give broader advice. Providing “fairness opinion” is not the most lucrative in the world of investment banking, but it requires less time and effort and the bank earns the fee even if the deal does not close—which is steady revenue for the bank. Here’s a fact: Houlihan Lokey has consistently ranked number one in “fairness opinion” market share.
Houlihan Lokey has built a talented team of bankers. By the end of June 2015, the company had 163 managing directors. Moreover, people tend to stay for quite a bit with the company. The average tenure of its managing directors is 10 years. In Houlihan Lokey’s Office of the Executives, the four members have been working there for an average of 27 years.
In a word, the company looks solid. It has a profitable business model, managed consistent growth, and survived market downturns. However, markets in the U.S. are not doing well today, as China announced its devaluation of the yuan. Whether the investment bank’s IPO will reflect its own potential or market sentiment remains to be seen.