It's not every day that a big investment bank goes public and lands on the market with a splash. This coming Thursday is one of those days: Los Angeles-based financial services provider Houlihan Lokey will hold its initial public offering. Here are the key whats and whys of the company and its IPO.
Private and profitable
Houlihan Lokey was happy to stay private for a long time, having been founded in 1972. Over that time, it's bulked up into one of the largest privately held investment banks on the planet. At the moment it has 17 offices around the world, which collectively are fairly lean operations employing a total of 695 people.
The company offers nearly every conceivable service related to investment banking. It's particularly strong in advising on mergers and acquisitions and corporate restructuring. Among its high-profile clients have been Dunkin' Brands, Priceline Group, and the company now known as Kraft Heinz.
Both of these activities can be very lucrative. Houlihan Lokey has been consistently and strongly profitable lately, recording total fee revenue of nearly $681 million in its most recent fiscal year -- a 15% improvement on a year-over-year basis.
Net income across that stretch of time saw a more impressive gain, meanwhile, growing by 30% to almost $80 million.
As for the IPO itself, it won't bring any funds directly into the company. This is because it's essentially a cash-out by the majority shareholder, Japanese conglomerate Orix (NYSE:IX). The Asian firm bought a 70% stake in 2006 for a mix of cash and stock worth roughly $500 million. Approximately 10 million of the 13 million Houlihan Lokey shares to be sold in the IPO are Orix's; the remainder are currently held by company executives and other insiders.
Following the IPO, Orix will hold approximately one-third of total shares outstanding.
Unlike some IPOs that have come through the pipe lately, I can't imagine that this one will explode in price right away. Houlihan Lokey is a veteran company that doesn't directly operate in any of the hot sectors -- say, casual dining or biotechnology.
But for those not looking for an immediate IPO pop and willing to hold onto their shares for a bit, this could be a very interesting new stock. M&A activity, the company's key area of expertise, is expected to grow at a rapid clip across the globe well into 2018.
The firm has a fine track record here, and is stable, profitable, and seems to enjoy a good reputation in its industry. As such, it feels like a solid investment for those who like having financials in their portfolio, not least because the company intends to pay a dividend starting (modestly) at $0.15 per share.
The Houlihan Lokey IPO is slated to take place this Thursday. Just over 13 million shares will hit the market, priced at $22 to $24 apiece. The firm is to be listed on the New York Stock Exchange under the ticker symbol HLI, and the issue's lead underwriters are Bank of America/Merrill Lynch, and Goldman Sachs.