Houlihan Lokey's chief executive has declared that the party for mid-market mergers and acquisitions has yet to begin, even as the firm reported a slip in quarterly revenue. The investment bank, known for its focus on middle-market deals, saw its revenue decline in the latest quarter, but the CEO remains optimistic about a future surge in activity.
Revenue Slip Amid Quiet Market
The firm's revenue for the fiscal third quarter fell to $1.1 billion, a 5% decrease from the same period last year. This decline reflects a broader slowdown in M&A activity across the industry, as high interest rates and economic uncertainty have kept many potential deals on hold. However, Houlihan Lokey's CEO, Scott Adelson, emphasized that this is a temporary lull rather than a long-term trend.
According to Adelson, the mid-market segment is poised for a rebound. He noted that private equity firms are sitting on significant dry powder, and corporate balance sheets remain strong, providing the fuel for future dealmaking. The CEO stated, “The M&A party hasn’t started yet, but when it does, it will be robust.”
Optimism for 2025
Adelson pointed to several factors that could reignite M&A activity in 2025. Lower interest rates, expected to come into effect later this year, would reduce borrowing costs and make financing deals more attractive. Additionally, regulatory clarity and a more favorable economic environment could encourage companies to pursue acquisitions.
The CEO also highlighted that Houlihan Lokey has been investing in its team and capabilities to capture market share when the recovery begins. The firm has added senior bankers and expanded its industry coverage, positioning itself to advise on a wider range of transactions.
Industry-Wide Trends
The cautious outlook from Houlihan Lokey mirrors sentiments across the investment banking sector. Many firms have reported sluggish M&A volumes, with deal values dropping by double digits in some cases. However, there is a consensus that the pipeline of potential deals is building, and activity is expected to accelerate once macroeconomic conditions improve.
Houlihan Lokey's focus on the mid-market, which includes companies with enterprise values between $100 million and $1 billion, makes it particularly sensitive to shifts in this segment. The CEO believes that this area will see a faster recovery compared to larger deals, as smaller companies often have more flexibility and a greater need for strategic transactions.
Financial Performance Details
In the fiscal third quarter, Houlihan Lokey reported a net income of $250 million, down from $270 million in the prior year. The decline was primarily driven by lower advisory fees, which fell 7% year-over-year. However, the firm’s restructuring and financing businesses showed resilience, partially offsetting the weakness in M&A.
The company’s shares have traded lower in recent months, reflecting the broader market concerns about deal activity. Despite this, Adelson remains confident, stating, “We are well-positioned for the upturn. Our pipeline is strong, and we are winning mandates that will close when conditions are right.”
Outlook and Strategy
Looking ahead, Houlihan Lokey plans to continue its hiring spree, particularly in sectors like technology, healthcare, and energy. The firm is also expanding its presence in key markets, including Europe and Asia, to capture cross-border deal flow.
Adelson concluded, “The fundamentals for mid-market M&A are solid. It’s not a question of if, but when the party starts. We are ready for it.”
