HLI Q4 Deep Dive: Corporate Finance Momentum and European Expansion Highlight Quarter

Investment banking firm Houlihan Lokey (NYSE:HLI) beat Wall Street’s revenue expectations in Q4 CY2025, with sales up 13% year on year to $717.1 million. Its non-GAAP profit of $1.94 per share was 3.6% above analysts’ consensus estimates.

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StockStory’s Take

Houlihan Lokey’s fourth quarter results surpassed Wall Street’s expectations for both revenue and adjusted earnings, with management attributing the performance to strengthening activity in its Corporate Finance segment and increased private equity deal flow. CEO Scott Adelson pointed to improving investor sentiment and robust M&A (mergers and acquisitions) activity as critical drivers, while the accelerated closing of restructuring transactions also played a role. Adelson noted, “We continue to benefit from improving investor sentiment, partially fueled by stronger company performance and expectations of declining interest rates.”

Looking forward, management’s outlook is shaped by optimism around sustained M&A recovery and targeted investments in international markets. Adelson emphasized the expansion of Houlihan Lokey’s European footprint and a strong acquisition pipeline, saying, “Our current visibility into both deal activity and backlog gives us more confidence” for the coming year. However, management also cautioned that revenue from restructuring is expected to moderate as market conditions stabilize, while geopolitical and sector-specific uncertainties remain potential wildcards.

Key Insights from Management’s Remarks

Management cited broad-based M&A recovery, strong private equity activity, and strategic acquisitions in Europe as primary drivers of recent financial performance and future positioning.

• Corporate Finance momentum: The Corporate Finance segment experienced double-digit growth, fueled by higher average transaction fees and an uptick in closed deals. Management noted that new business activity and backlog are both trending positively, reflecting a broad-based increase in middle-market M&A.

• Restructuring timing shift: Financial Restructuring outperformed this quarter due to several transactions closing earlier than initially anticipated. Management expects this to lead to lower restructuring revenue in the next quarter, reversing typical seasonal patterns.

• European expansion through acquisitions: The company completed the acquisition of Mellon Capital’s real estate advisory business and announced a controlling interest in O'Dare Partners in France. These moves are expected to significantly enhance the firm’s presence and capabilities in Europe, especially in key markets like France, Germany, and the UK.

• Private equity driving activity: Management highlighted that private equity clients are increasingly active in seeking liquidity, leading to greater deal flow across multiple sectors. The improvement has been steady, with notable acceleration following key periods like the start of the year.

• Data monetization strategy: Houlihan Lokey launched its DataBank product, aiming to leverage proprietary data assets for future monetization. While currently a small part of the business, management views this as an important indicator of evolving data-driven opportunities.

Drivers of Future Performance

Houlihan Lokey anticipates ongoing M&A strength and further international expansion, but expects restructuring revenue to normalize as market conditions improve.

• M&A pipeline and backlog: Management believes that robust M&A pipelines, especially among private equity clients, will continue to drive growth. The company’s focus on sector coverage and global reach is intended to capture pent-up demand as deal activity recovers.

• European market development: Recent acquisitions in France and the UK are expected to boost the firm’s competitive position and scale in Europe. Management sees room for continued growth across industries and regions, with a particular focus on building out subsector expertise and capital solutions capabilities.

• Cautious restructuring outlook: While restructuring revenue was strong this quarter, management expects normalization as credit markets stabilize and M&A activity accelerates. However, they noted that unexpected geopolitical or sector disruptions could spur new restructuring opportunities.

Catalysts in Upcoming Quarters

In the coming quarters, we will closely monitor (1) the pace of M&A recovery and whether current deal pipelines convert into closed transactions, (2) the integration and performance impact of recent European acquisitions, and (3) the trajectory of restructuring demand as credit conditions and geopolitical risks evolve. We will also watch for further developments around the firm’s data monetization initiatives and expansion of sector coverage.

Houlihan Lokey currently trades at $180.54, in line with $180.53 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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