Houlihan Lokey (HLI) Q2 2026: Corporate Finance Revenue Jumps 21% as Global Deal Activity Rebounds

2025-10-30 | By EarningsIQ Research

Houlihan Lokey delivered a substantial acceleration in corporate finance revenue, up 21% year-on-year, as M&A activity and sponsor engagement rebounded globally. The firm’s results highlight a shift in deal timing and segment mix, with capital solutions now exceeding 20% of corporate finance revenue and non-U.S. regions outperforming the U.S. on a relative basis. Management signals a strong fourth quarter ahead, citing robust backlogs, healthy hiring momentum, and a constructive macro backdrop fueling confidence for continued growth into fiscal 2027.

Summary

• Deal Timing Shift: Fourth quarter expected to outpace third, breaking seasonal patterns as backlogs build.
• Capital Solutions Expansion: This business now exceeds 20% of corporate finance revenue, outpacing M&A growth in the cycle.
• International Outperformance: EMEA and Asia Pacific businesses grew faster than U.S. corporate finance for the year-to-date period.

Performance Analysis

Houlihan Lokey’s second quarter showcased broad-based revenue growth, with total revenues of $659 million, up 15% year-over-year, and adjusted EPS up 26%. Corporate finance led the surge, generating $439 million, a 21% increase, driven by a record 171 completed transactions and rising deal flow from both strategic and sponsor clients. The average transaction fee declined, reflecting a mix shift, but volume gains more than offset this headwind.

Financial restructuring (FR) revenues remained resilient at $134 million, up 2% year-on-year, with 37 transactions closed. While new business formation in FR is moderating as macro conditions improve, the backlog remains robust, supporting expectations for elevated activity through year-end. Financial and valuation advisory (FVA) delivered $87 million, up 10%, with a 19% increase in fee events, reflecting both M&A-driven and non-cyclical demand.

• Expense Discipline Maintained: Adjusted compensation expense ratio held steady at 61.5%, with non-compensation expense ratio improving to 12.5% from 14.1%.
• Share Repurchases: 210,000 shares were repurchased, balancing acquisition flexibility with dilution management.
• Cash Position: $1.1 billion in unrestricted cash and securities, with upcoming bonus payments to reduce this balance.

Overall, the quarter reflects a firm capitalizing on a constructive deal environment, with segment diversification and geographic expansion enhancing resilience and growth optionality.

Executive Commentary

Strategic Positioning

1. Corporate Finance Momentum and Mix Shift

Corporate finance is seeing renewed momentum, with a record number of deals and a notable shift in mix. Capital solutions, which includes debt and equity advisory, now represents over 20% of the segment, outpacing traditional M&A in growth. This diversification reduces cyclicality and provides a buffer against pure M&A slowdowns, positioning HLI for steadier revenue streams even as deal types shift with market conditions.

2. Global Expansion and Productivity Ramp

Non-U.S. businesses in EMEA and Asia Pacific delivered outsized growth, outperforming the U.S. on a percentage basis year-to-date. While productivity per banker still trails the U.S. due to business maturity, strong hiring and investment in these regions are translating into accelerating fee pools and a deliberate march toward U.S.-level scale. Management believes EMEA’s fee pool could eventually rival that of the U.S., underscoring a long-term international growth thesis.

3. Restructuring: Resilient but Moderating

Financial restructuring remains at elevated levels, supported by a robust backlog and episodic sector stress, despite a gradual slowing in new business formation as macro conditions improve. Management notes diversification across sectors and geographies, with no single industry dominating activity. The business is benefiting from both liability management assignments and traditional in-court restructurings, providing flexibility as credit cycles evolve.

4. Talent and Acquisition Pipeline

Senior hiring and strategic acquisitions remain a core growth lever, with five new managing directors added in the quarter and a strong acquisition pipeline. The competitive market for talent has not materially altered acquisition pricing or deal flow, according to management. The focus remains on expanding the senior banker base globally to drive future growth.

Key Considerations

The quarter’s results highlight Houlihan Lokey’s ability to navigate and capitalize on shifting market conditions, with segment and geographic diversification buffering cyclicality and supporting growth.

Key Considerations:

• Deal Volume Surge: Highest corporate finance transaction count since late 2021, signaling broad market recovery.
• Capital Solutions Outperformance: This business now exceeds 20% of corporate finance revenue, providing a less cyclical growth engine.
• International Scale-Up: EMEA and Asia Pacific growth outpaced U.S., with management targeting long-term fee pool parity.
• Expense Control: Compensation and non-comp expense ratios remain tightly managed, supporting margin stability.
• Acquisition Flexibility: Strong cash balance enables continued M&A and opportunistic share repurchases without constraining growth.

Risks

Key risks include potential volatility in deal timing, especially with an atypical fourth quarter surge expected, and exposure to episodic shocks in restructuring volumes. Geopolitical uncertainty and macro “noise” remain elevated, which could dampen client confidence or disrupt capital markets. Additionally, international expansion carries execution and productivity ramp risks as regional businesses mature.

Forward Outlook

For the third quarter, management expects:

• Corporate finance revenue to be lower than the fourth quarter, breaking from typical seasonality.
• Restructuring and FVA to remain stable, supported by existing backlogs.

For full-year 2026, management maintained a positive outlook:

• Year-over-year growth in all core segments if current macro trends persist.

Management highlighted several factors that will drive results:

• Deal timing shift, with a strong Q4 expected due to backlog conversion.
• Continued hiring and acquisition activity to expand senior banker ranks and global reach.

Takeaways

Houlihan Lokey’s Q2 results signal a firm leveraging both market recovery and internal diversification to drive growth, with capital solutions and international expansion providing new levers beyond traditional M&A cycles.

• Corporate Finance Acceleration: Volume-led growth and capital solutions mix shift are increasing revenue visibility and reducing cyclicality.
• Global Growth Trajectory: EMEA and Asia Pacific outperformance signals a credible path to international scale, though productivity gaps remain.
• Restructuring Resilience: While new activity is moderating, a robust backlog and diverse sector exposure provide a buffer against macro shifts.

Conclusion

Houlihan Lokey enters the second half of fiscal 2026 with building momentum, driven by deal volume recovery, segment diversification, and disciplined expense management. International growth and capital solutions expansion position the firm for continued outperformance, though investors should monitor deal timing volatility and macro risks as the cycle evolves.

Industry Read-Through

The rebound in corporate finance activity and capital solutions growth at Houlihan Lokey signals a broader reopening of M&A and capital markets, especially for middle-market and sponsor-driven deals. Rising international fee pools and persistent restructuring demand point to a more global and diversified deal environment, with episodic sector stress providing opportunities for advisory firms. Expense discipline and talent acquisition remain differentiators, with firms able to balance growth and profitability likely to outperform as the cycle matures.

HLI Financials Investment Banking M&A Capital Solutions Restructuring International Expense Management