In a financial climate like this, no one would blame you too much if you had to cut a significant percentage of your staff.
Houlihan Lokey, the Los Angeles-based investment bank, has hired through the downturn and hasn't any plans for big layoffs. The firm added 20 bankers last year, bringing its total staff to 850. Its most recent hire announced two weeks ago was Steven Tishman from competitor Rothschild, who will head the global mergers and acquisitions business.
The secret behind this kind of stability is Houlihan's concentration on both M&A transactions and corporate restructurings, according to Scott Adelson, global co-head of corporate finance. It does well when the economy is booming and companies are buying one another and, like now, when the outlook is grim and firms or creditors need advice in a bankruptcy proceeding.
As a small boutique that doesn't leverage its balance sheet to provide capital, Adelson says the firm gives "truly independent advice." FINS caught up with Adelson, 51, to understand just how Houlihan is able to grow even in a weak economy.
Julie Steinberg: Houlihan has been hiring through both the financial crisis and the recession. How has the firm been able to do that?
Scott Adelson: Most layoffs are coming from large, fully-integrated institutions that combine capital and advice. The practical reality is people always have a need for the best independent advice, regardless of cycle.
Our firm is very different from the Street, which acts like an accordion and contracts and expands with the markets. When times are difficult, we don't do rounds of layoffs where a large percentage of our staff gets cut. Larger institutions that play with other people's money tend to go aggressively after an idea and throw a ton of money and people at it. If the world changes it, they tend to retreat back. We don't do that. It's much more of a partnership culture. We act methodically.
JS: How has your business model allowed you to avoid that accordion-like effect?
SA: Our "bull bear" balance between corporate finance/M&A and restructuring is a wonderful asset. During difficult economic times, the restructuring business becomes a very meaningful part of our business, while corporate finance and M&A decline. In a healthy environment, the opposite occurs.
Also, in an uncertain world, when it comes to M&A, companies are less likely to do mega transactions than they are to tuck in and bolt on acquisitions that are of scale, but that aren't mega. Since that is where our forte has been, that's a less volatile business.
JS: So what makes you different from your competitors, like Lazard, Greenhill or Evercore?
SA: They are chasing the very large scale M&A transactions and don't really have the restructuring balance that we do.
If the mix for them is 80%-20%, large deals to smaller deals within M&A, ours is 80%-20% the other way. We specialize in M&A transactions below $2 billion. Where we have focused our efforts has been a much less volatile part of the market than for others.
What we have in common with those firms is companies and financial sponsors who want insights and advice and are willing to pay for that. At a financial institution, it's often unclear whether companies are truly paying for their advice or just paying for capital.
JS: How do your hiring plans look for 2012? Are you planning to bring people on?
SA: We have added and will continue to add. We hired six new managing directors in corporate finance in the last nine months. We're hiring in Europe, really in London; it's kind of counter-cyclical. We're still doing deals this year. We're hiring both for restructuring and for M&A. We're continuing to add in the U.S. as well. We're talking about senior people, seasoned talent. The support that goes with it tends to come over time.
JS: How about in Asia?
SA: We're continuing to add in Asia but trying to do it wisely. That doesn't mean go out and hire and build it and they will come. That's not our mentality. I'm going over in February to do a bunch of interviews. Asia is a massive opportunity. It's largely been equity capital markets and it's evolving into more of a restructuring and M&A market over time. We've got offices in Hong Kong, Beijing, Tokyo and have a minority ownership stake in a company with offices in Singapore and Mumbai. They're growing that rapidly as well.
JS: Can you estimate how many people you'd like to hire this year?
SA: It's not the way we think about it. That type of process gets the accordion treatment. You think, so I can do X in revenues and get 300 people to do that. If revenue doesn't go up I get rid of 250. We want to find great people. When we find them we'll hire them. We don't go out saying "we will hire 50."
JS: How about campus recruiting?
SA: We'll be in full swing for campus recruiting, it's no different than ever.
You don't ever just stop hiring. When you're in a balance sheet business, the people are secondary. If I ran a balance sheet institution, the people would come second too.
The practical reality is people basically don't leave here. Occasionally they do for personal reasons. But there is a quality of life differential.
Related: How to Get a Job at Houlihan Lokey
Write to Julie.Steinberg at Julie.Steinberg@dowjones.com
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