Houlihan Lokey, Inc. (HLI): SWOT Analysis [Nov-2025 Updated]

You're digging into Houlihan Lokey's (HLI) 2025 performance, and the headline is clear: they are a defintely resilient specialist. The firm delivered a record fiscal year 2025 with $2.39 billion in revenue and $400 million in net income, cementing their role as the global leader in financial restructuring. But that success, with 64% of revenue tied to the Corporate Finance segment, creates a strategic reliance that's exposed to the current M&A slowdown, plus their compensation expense ratio remains high at 61.5%. We need to look past the record numbers to see how their strategic acquisitions and the looming demand for restructuring services will play out against geopolitical risks and intense competition in the mid-cap space. Dive into the full SWOT analysis below to map the specific risks and opportunities that drive clear, actionable decisions.

Houlihan Lokey, Inc. (HLI) - SWOT Analysis: Strengths

No. 1 Global Restructuring Advisor for 11 Consecutive Years

You need a firm that can navigate a downturn, and Houlihan Lokey is defintely the gold standard here. Their Financial Restructuring (FR) group has held the No. 1 position globally for 11 consecutive years as the top restructuring advisor, based on the number of transactions reported by LSEG (formerly Refinitiv).

This long-term, market-leading dominance means they are the go-to firm when companies face complex debt issues or bankruptcy (distressed M&A). That consistent ranking provides a powerful counter-cyclical hedge for the overall business, which is a critical strength in volatile markets.

Record Fiscal Year 2025 Revenue of $2.39 Billion

The firm achieved record performance in the fiscal year (FY) ended March 31, 2025, proving their ability to capture market share in an improving environment. Total revenues hit a record $2.39 billion, representing a substantial 24.8% increase over the $1.91 billion reported in FY 2024.

Here's the quick math: almost a quarter of revenue growth year-over-year. This strong financial momentum is a direct result of increased activity across all three core segments, particularly Corporate Finance, which saw a 38% revenue increase.

Market Leader in M&A Volume, Advising on 93 Deals in North America in H1 2025

Houlihan Lokey is a volume leader in the middle-market mergers and acquisitions (M&A) space. In the first half (H1) of fiscal year 2025, the firm led the North American M&A volume rankings, advising on a total of 93 deals.

This focus on deal volume, rather than just mega-deal value, shows a deep and wide penetration into the core middle-market. This strategy makes the firm less reliant on a few massive, unpredictable transactions. They are the top M&A advisor in the U.S. over the past 10 years by transaction count.

Diversified Revenue Across Three Core Segments

The firm's revenue diversification across three distinct, non-correlated business lines is a key strength. When M&A activity is slow (Corporate Finance), restructuring (Financial Restructuring) tends to pick up, and vice versa. This balanced model provides revenue stability.

For FY 2025, the revenue breakdown clearly shows this diversification, with Corporate Finance leading the charge but the other two segments providing solid support and growth:

Strong Profitability with Adjusted Pre-Tax Margin Reaching 25.9% in FY 2025

The firm's operational efficiency is a massive strength. For FY 2025, Houlihan Lokey reported an adjusted pre-tax income of $619 million, which translates to an adjusted pre-tax margin of 25.9%.

That's a significant margin improvement from the 23.0% margin reported in FY 2024. This margin expansion, driven by a combination of higher revenue and controlled non-compensation expenses, demonstrates superior operating leverage (how quickly profit grows relative to revenue). They are highly disciplined with costs. This kind of margin performance is top-tier for a publicly traded independent advisory firm.

Houlihan Lokey, Inc. (HLI) - SWOT Analysis: Weaknesses

You're looking for the cracks in Houlihan Lokey, Inc.'s armor, and that's smart. While the firm is a powerhouse, especially in restructuring, its weaknesses map directly to its revenue concentration and its high operating costs. We need to look closely at the Q3 Fiscal 2025 numbers to see where the pressure points are.

Heavy reliance on the Corporate Finance segment, which accounted for 64% of revenue in FY 2025.

The biggest structural weakness is the heavy dependence on the Corporate Finance (CF) segment. In Fiscal Year 2025, this segment was responsible for a massive 64% of the firm's total revenue. This is a double-edged sword: it's great when M&A markets are hot, but it creates a single point of failure when deal volume slows down. If M&A activity drops even a little, the entire firm's top-line revenue takes a disproportionate hit.

To be fair, the other segments, Financial Restructuring (FR) and Financial and Valuation Advisory (FVA), provide some diversification, but they are much smaller. This over-reliance means Houlihan Lokey is defintely more susceptible to cyclical M&A downturns than a more evenly balanced competitor.

• CF: 64% of FY 2025 revenue.
• FR: 23% of FY 2025 revenue.
• FVA: 13% of FY 2025 revenue.

Compensation expense ratio remains high, holding steady at 61.5% in Q3 Fiscal 2025.

Investment banking is a people business, so compensation is always the largest expense. Still, Houlihan Lokey's adjusted compensation ratio-the percentage of revenue paid out to employees-remains stubbornly high. For the third quarter of Fiscal 2025 (ended December 31, 2024), the adjusted ratio was 61.5%.

Here's the quick math: for every dollar of revenue the firm earns, over 61 cents goes toward employee pay and benefits. This ratio held steady at 61.5% even compared to the prior year's Q3. This high fixed-cost structure means that in a revenue downturn, margins will compress quickly, because it's hard to cut highly-paid Managing Directors fast enough to match the revenue decline.

Average transaction fee decreased in Corporate Finance due to transaction mix in Q3 2025.

While the Corporate Finance segment saw a robust revenue increase of 36% year-over-year in Q3 Fiscal 2025, the underlying quality of that revenue showed a weakness. The firm noted that the increase was partially offset by a decrease in the average transaction fee on closed deals.

This drop in the average fee was driven by transaction mix. This suggests that while the sheer volume of closed deals was up-which is great-more of those deals were smaller or less complex, which command lower fees. The firm is doing more work for less per deal, which puts pressure on the efficiency of their dealmakers.

Growth in the Financial Restructuring segment was slower in Q3 2025, increasing only 2% year-over-year.

The Financial Restructuring (FR) segment is a critical counter-cyclical hedge for Houlihan Lokey. When M&A is down, restructuring is usually up. However, in Q3 Fiscal 2025, this segment's growth was surprisingly slow, increasing by only 2% year-over-year. This translated to revenues of $130.942 million for the quarter, up from $128.565 million in the prior year's quarter.

This meager growth suggests that the expected wave of corporate distress from higher interest rates hasn't fully materialized yet, or that competition is fierce. The segment's growth is not keeping pace with the Corporate Finance segment's surge, which saw a 36% jump. This disparity highlights a lack of strong, balanced growth across all core segments.

Houlihan Lokey, Inc. (HLI) - SWOT Analysis: Opportunities

Increased demand for Financial Restructuring services due to persistent high interest rates and liquidity crunch.

The current macroeconomic environment, marked by persistent high interest rates and a tightening of liquidity, presents a significant, counter-cyclical opportunity for Houlihan Lokey's Financial Restructuring (FR) business. While rising rates have slowed M&A activity across the industry, they simultaneously increase the cost of capital and refinancing risk for highly leveraged companies, driving them toward restructuring advisory.

For the fiscal year ended March 31, 2025 (FY2025), the FR segment demonstrated resilience, generating revenues of $544.5 million, a 4% increase over the prior fiscal year. This stability is a direct result of the firm's market-leading position as the No. 1 global restructuring advisor for the past 11 years. The average holding period for buyout deals has stretched to 6.4 years in 2025, which means more portfolio companies are sitting on private equity balance sheets longer, increasing the likelihood of financial distress or the need for a complex capital structure solution. This is a defintely a core strength that becomes a major opportunity when the market is stressed.

Strategic acquisitions (19 over 12 years) to deepen industry coverage and expand geographic reach.

Houlihan Lokey's deliberate inorganic growth strategy-acquiring specialized boutiques-is a proven engine for expanding its service offering and global footprint. This approach allows the firm to quickly add deep sector expertise and gain a physical presence in new, high-growth markets without the long ramp-up time of organic expansion.

Recent acquisitions have been highly strategic:

• Acquiring GCA Corporation in October 2021 significantly expanded the firm's presence in Europe and Asia, particularly in technology advisory.
• The December 2023 acquisition of 7 Mile Advisors boosted the firm's IT services capabilities, directly enhancing the Business Services Group.
• The October 2024 acquisition of PRYTANIA SOLUTIONS SERVICES LIMITED, a London-based company, bolstered structured credit and automated valuation services.

This strategy ensures HLI can capture market share in high-demand, specialized areas, such as technology, data & analytics, and financial institutions, making the firm a one-stop shop for complex global transactions.

Leveraging Artificial Intelligence (AI) to streamline secondaries and underwriting, offering an 8x-10x productivity boost in some areas.

The integration of Artificial Intelligence (AI) across advisory services represents a massive efficiency opportunity. By automating manual, data-intensive tasks, HLI can free up its highly compensated financial professionals to focus on complex client advisory, which is where the real value is created.

The firm is already making a 'huge push' to use its own proprietary AI systems for monitoring the M&A market and capitalizing on its immense internal data. This is not about marginal gains; some industry peers are already measuring an 8x to 10x productivity boost in areas like software engineering teams due to new AI tooling. For HLI, the opportunity lies in:

• Streamlining secondaries documentation, which is notoriously onerous, allowing for higher transaction volume.
• Enhancing underwriting and due diligence in the private credit team for faster, more accurate risk assessment.
• Transforming portfolio valuation through an end-to-end platform powered by AI and data science.

The ability to process vast datasets at unprecedented speed will give HLI a competitive edge in providing market intelligence and valuation services.

Reshaped investor exit preferences favoring company sales and private secondaries over delayed IPOs.

The prolonged closure of the traditional Initial Public Offering (IPO) window has fundamentally reshaped how investors seek liquidity, creating a massive opportunity for the firm's Corporate Finance and Capital Solutions groups.

M&A has become the default exit path, accounting for nearly 74% of all venture-backed exits through May 2025. This trend directly fueled HLI's Corporate Finance (CF) segment, which saw a 38% increase in revenues to $1.527 billion in FY2025.

Furthermore, the secondary market is booming as Limited Partners (LPs) and General Partners (GPs) seek liquidity outside of the public markets. Global secondary volume hit a record high of $103 billion USD in the first half of 2025 (H1 2025), representing an unprecedented 51% increase over H1 2024. HLI is well-positioned to capture this market with its strong secondary platform, which advises both LPs seeking to sell positions and GPs using continuation vehicles to manage assets.

Houlihan Lokey, Inc. (HLI) - SWOT Analysis: Threats

Geopolitical uncertainty and new tariffs are reversing macroeconomic sentiment, increasing scrutiny on deal-making.

You are seeing firsthand how global instability immediately chills the M&A market, and Houlihan Lokey is not immune, even with its restructuring strength. The specter of new U.S. tariff policies, like those seen in early 2025, introduced volatility that caused a significant pause in deal processes. A PwC Pulse Survey from May 2025 found that 30 percent of companies had either paused or revisited their deals due to this tariff uncertainty, which is a massive headwind for the Corporate Finance segment. That's a lot of potential fee revenue sitting on the sidelines.

Cross-border M&A activity is particularly vulnerable, facing heightened regulatory scrutiny and the risk of transactions collapsing altogether. Global M&A volumes declined by 9 percent in the first half of 2025 compared to the same period in 2024, showing that while deal values in some mega-deals are up, the sheer volume of transactions HLI relies on is under pressure. This forces the firm to spend more time on risk analysis and less time on closing deals. Honestly, a single, abrupt geopolitical shock can wipe out a quarter's worth of pipeline.

Intense competition in the mid-cap investment banking sector from both bulge-bracket and boutique firms.

While Houlihan Lokey remains a global powerhouse in M&A deal volume, the competition is fierce and closing the gap, especially in the lucrative mid-cap space. The bulge-bracket firms (large, full-service investment banks) are aggressively moving down-market for volume, which directly impacts HLI's core business. For instance, in the Americas M&A deal count for the first half of 2025, Houlihan Lokey slipped to the third position with 141 deals, trailing behind Goldman Sachs (173 deals) and JPMorgan (157 deals).

The boutique firms are also getting sharper. Jefferies and Piper Sandler, for example, each advised on 49 deals in North America in the first half of 2025, showcasing their growing presence in the middle market. HLI's dominance is based on sheer deal count, so any erosion here, particularly from well-capitalized competitors, is a direct threat to its market share and pricing power.

• Bulge-bracket firms are targeting mid-market volume.
• Boutiques like Jefferies are increasing their deal count.
• HLI must defend its top-tier volume position against larger rivals.

Public market volatility is delaying the broad reopening of the IPO window, limiting exit options for clients.

The Initial Public Offering (IPO) market is open, but it's still a selective and risky environment, not the broad, high-valuation window clients want. Through the third quarter of 2025, U.S. traditional IPOs raised over $29.3 billion, marking a 31% increase from the previous year, which sounds great. But here's the quick math: many clients are forced to accept significantly lower public valuations to get their deals done.

We saw a leading fintech and a digital health platform go public at discounts of 64% and 63%, respectively, to their prior peak private valuations. This reset in valuation expectations means clients are often delaying their IPO plans, opting to stay private longer or seek alternative exits. When clients delay, HLI's Corporate Finance revenue is delayed too, creating lumpiness in fee income and putting pressure on its advisory pipeline backlog.

Integration challenges and execution risk associated with their strategy of frequent, strategic acquisitions.

Houlihan Lokey's growth strategy heavily relies on strategic acquisitions to expand its industry coverage and geographic footprint. This constant M&A activity, while good for growth, introduces execution risk. Integrating new teams, cultures, and compensation structures is never easy, and if onboarding takes 14+ days, churn risk rises for new talent.

The firm's non-compensation expenses rose to $364 million for the fiscal year ended March 31, 2025, up from $338 million in the prior year. This increase is partly driven by higher depreciation, amortization, and information technology costs-all common symptoms of integrating acquired businesses. Furthermore, management has noted that productivity in non-U.S. offices, often the target of these acquisitions, still lags behind their U.S. counterparts, meaning the expected return on investment from these deals is not yet fully realized.