However, the firm that stood out the most last year was
Houlihan’s numbers speak for themselves. Last year, the investment bank closed 129 transactions, representing a 40% increase compared to the 92 sell-side assignments it closed in 2004. And that’s just counting M&A assignments.
Even more impressive than the growth of 26-year-old Houlihan’s transaction base is the expansion of its geographic footprint. In 2005, Houlihan opened and staffed its second and third European offices—one in Paris, the other in Frankfurt—increasing its headcount on the continent by approximately 30%, according to Houlihan Senior Managing Director Bob Hotz. The firm now boasts 11 offices in the U.S. and Europe.
Furthermore, last October, Houlihan negotiated a transaction with one of its clients, Tokyo-based financial services group ORIX Corp., in a move that further expanded its global capabilities. Per terms of the $500 million-plus deal, the two firms established a holding company housing both Houlihan and the corporate lending operations of ORIX’s subsidiary, ORIX USA. ORIX now owns 70% of Houlihan.
The marriage is mutually beneficial as ORIX had been trying to grow its footprint in the U.S., while Houlihan was seeking to expand its international presence beyond Europe.
“ORIX recognized that we come across a number of opportunities in need of financing, and that if they teamed up with us, they would be privy to more lending opportunities, particularly in the United States,” Hotz says. “What [Houlihan] identified is an opportunity that provides us access and a strong list of contacts within the Asian marketplace, where we had been looking to export some of our investment banking capabilities.”
Houlihan Managing Director Justin Abelow adds, “It’s not just the Ripplewoods and the Crimsons that are going to Asia. In this day and age, there is no domestic private equity firm that does not have some interest—direct or indirect—in Asia. Just because they are not buying companies that are domiciled in Asia doesn’t mean their fortunes aren’t intimately involved with the continent on another level.”
Moreover, the ORIX transaction gives Houlihan the ability to provide stapled financing to small- and lower-middle-market buyers, which historically have not been the recipients of such services. It’s more likely that a stapled product would be used at the lower end of the market, Hotz says, because as you get into the larger transactions, the sponsors generally have pre-existing relationships with lenders.
Just Plain Good
Even when it comes to straight M&A, Houlihan, which has more than 700 employees, has carved its own niche. Similar to its bulge-bracket compatriots, yet unlike many of its mid-market peers, Houlihan has built a business model based on industry expertise across the spectrum—employing dedicated specialists in groups such as consumer goods; engineering and construction; basic industrial; media, sports and entertainment; technology; lodging; defense; healthcare; and energy.
“Once firms see how knowledgeable our industry people are, we often are asked to represent them on the buy-side, which allows us to do some paid marketing and strut our stuff,” Abelow says. “There is nothing we like more than to be able to strut our stuff to a private equity buyer because we know that one day they will be a private equity seller, and they are going to think of us when it’s time to exit.”
Houlihan’s industry expertise also allows the firm to choose top-notch assignments. Houlihan was a key player in two of Buyouts’ 2005 Deal-of-the-Year-winning transactions. The firm ran the sale process for Mammoth Mountain Ski Area, which was acquired by Starwood Capital for $365 million and won Middle Market Deal of the Year. It also rendered a fairness opinion to the special committee of the board of directors of The Vermont Teddy Bear Co. on its sale to an investment group led by The Mustang Group LLC, which won Buyouts’ Public-to-Private Deal of the Year.
“From a buyer’s perspective, as a source of product, we like seeing businesses from Houlihan,” says Eric Bommer, a partner at Sentinel Capital Partners. “They provide a diverse mix of businesses with respect to industry and also with respect to issues. We see squeaky clean companies from Houlihan and we see ones with some hair on them, since they have a restructuring component, too. We’ll see corporate divestitures as well as privately-held recap opportunities with management. It’s not the same product from them all the time.”
This year ought to be a repeat of 2005—only better, says Houlihan co-CEO and Senior Managing Director Jeff Werbalowsky. Houlihan will continue to step up its cross-border activity and strive to become a household name in Europe, as it has in the U.S. Also, through ORIX, the firm will roll out its franchise in Asia and continue the introduction of stapled financing to the smaller markets.
“If you were to close your eyes and ask yourself, ‘What is the optimum platform to best provide for mid-market players world-wide?’ that is precisely what we are trying to put together at Houlihan,” Werbalowsky says.
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