Houlihan Lokey Sees a Restructuring Boom Emerging From the Exit Drought. Secondaries Should Take Note
Houlihan Lokey’s Q1 revenue fell 15.5% as mid-market M&A slipped. Executives said software leverage and private credit dislocation could fuel restructuring activity over the next two to three years.
Houlihan Lokey (NYSE: HLI) reported first-quarter fiscal 2027 revenue of $511 million on July 29, down from $605 million a year earlier, with adjusted diluted EPS of $1.35 against $2.14 in the prior-year period. GAAP diluted EPS came in at $1.15. The headline miss was entirely a Corporate Finance story, M&A advisory revenue fell 24% to $303 million as larger, higher-fee transactions kept slipping into later quarters. Financial Restructuring and Financial and Valuation Advisory (FVA) told a different story, and it's the one worth reading closely if you cover secondaries.
Where it hurt: mid-cap M&A stuck in a “rain delay”
CEO Scott Adelson pinned the Corporate Finance shortfall on two overlapping shocks that began surfacing on the firm’s Q4 call and persisted through the quarter: instability tied to the war in the Middle East, and a technology-sector repricing concentrated in software. Firmwide technology revenue, “the bulk of which is software,” per CFO Lindsay Alley, was down about 54%, or $53 million, for the quarter. Deal volume held roughly flat year over year (127 closed transactions versus 125), but the average fee per closed deal fell sharply as larger, more complex mandates got pushed out rather than cancelled. Management was explicit that backlog and new-mandate activity in Corporate Finance are at record levels, and that the rate of deals going dead or on hold hasn’t moved, this is a timing problem, not a demand problem, in their telling.
Sponsor-driven deal flow was named as a specific drag: “sponsors are putting their toes back in the water one at a time, very, very slowly,” management said on the call, and every fresh headline risk sends them back to the sidelines. That’s the same caution that’s kept trade-sale and IPO exit windows narrow across the market this year, and the same dynamic pushing GPs toward continuation vehicles and other secondaries-driven liquidity tools instead of waiting for a strategic buyer or an IPO.
Where it worked: FVA hits a record, and restructuring is the forward story
Financial and Valuation Advisory, the segment that marks private portfolios, supports fund audits, and increasingly underpins GP-led secondaries pricing, posted a record 1,042 Fee Events in the quarter, up 9% year over year, and revenue grew 13% to $89 million even as the rest of the firm contracted. Management called out growth across all three FVA service lines and pointed to the firm’s Morningstar-branded CLO benchmark partnership as an early step toward monetizing its proprietary marks and pricing data more broadly.
Financial Restructuring revenue dipped 8% to $119 million on fewer closed transactions (23, down from 35), though the average fee per deal rose. Management framed this as timing, not softness, and reiterated that restructuring activity is expected to stay “at elevated levels” for the full fiscal year. The more interesting comment came in response to a question about how long the software slowdown could keep feeding the restructuring pipeline.
“What’s affecting us today in M&A is going to have a positive impact on our restructuring business over the next two to three years because of the investments we’ve made in technology and specifically in software.”
Houlihan Lokey management, Q1 FY2027 earnings call
Management tied that directly to continued dislocation in private credit, the same asset class increasingly showing up in secondaries deal flow through NAV loans, preferred equity, and private-credit-fund secondaries. Their read: highly leveraged software companies financed through private credit are the setup for a multi-year wave of restructuring mandates, not a one-quarter blip.
Why it matters for secondaries
None of this makes Houlihan Lokey a secondaries shop in the way Moelis, Jefferies, or Evercore’s dedicated GP-led teams are, HLI’s growth ambitions here center on FVA’s valuation and data business rather than a standalone continuation-vehicle advisory practice. But the quarter is a useful data point for two threads Secondary Scoop has been tracking. First, the exit drought: a mid-market M&A cycle management itself describes as a “rain delay” is exactly the environment pushing LPs and GPs toward secondaries-driven liquidity instead of waiting out a strategic sale. Second, the private credit and software stress management expects to convert into restructuring mandates “over the next two to three years” sits upstream of the NAV lending and distressed-fund secondaries activity this newsletter covers regularly, a forecast worth revisiting each quarter as it plays out.
There’s also a talent-market footnote: Houlihan Lokey is where Rich Saltzman (the banker Moelis just hired away from Jefferies to run its new GP-led Advisory practice) started his career, before Guggenheim and Jefferies. HLI added three new managing directors this quarter and now counts 260 in Corporate Finance alone.
The smaller print
Houlihan Lokey declared a regular quarterly dividend of $0.70 per share, payable September 15 to holders of record as of September 1, and repurchased 348,000 shares during the quarter. Cash and investment securities stood at $797 million as of June 30, 2026, down from roughly $1.36 billion at the end of March, largely reflecting annual bonus payouts. The firm’s adjusted compensation ratio held at its long-standing 61.5% target, which management said it expects to maintain for all of fiscal 2027, while the adjusted effective tax rate is guided to 26–28% for the year. Separately, HLI’s acquisition of Intrepid Financial Partners, an independent energy-sector investment bank, is expected to close by the end of the second fiscal quarter and will add 32 bankers to the firm’s energy practice.