HLI Q4 2025: Growing Backlog from Resilient Mid-Market and Non-US M&A
- Strong Corporate Finance Backlog: Executives noted that deal backlogs remain strong and growing, with an improvement in deal velocity, suggesting robust transaction activity even in a volatile market.
- Resilient Mid-Market M&A: The team highlighted that mid-cap M&A volumes are much more resilient than large-cap deals, which can help cushion revenue performance amid market volatility.
- Geographic Diversification Benefits: The discussion indicated that the non-U.S. business continues to gain share and is less affected by U.S. market disruptions, providing a diversified and more stable revenue base.
- Market uncertainty: Executives noted the difficulty in forecasting near‐term revenues due to prevailing market volatility, suggesting that the current unpredictable environment may pose risks to future performance.
- Divergent regional impacts: The discussion highlighted that U.S. market disruptions are more severe compared to non‑U.S. markets, implying potential underperformance or increased risk in the U.S. segment.
- Sector-specific headwinds: There is an implied risk from differing impacts across sectors and geographies, where some segments might be more adversely affected by economic and regulatory uncertainties.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +28% YoY | Total revenue increased from $520.51M to $666.45M driven by strong growth across all segments. Improvements in Corporate Finance, along with solid performance in Financial & Valuation Advisory and modest gains in Financial Restructuring, compounded the overall revenue growth, reflecting the continued momentum from previous quarters. |
Corporate Finance revenue | +44% YoY | Corporate Finance revenue surged from $287.55M to $412.71M due to a robust rebound in M&A and financing markets, increased transaction volume, and favorable deal mix that built upon previous period performance. This segment continues to leverage enhanced market conditions and strategic acquisitions to drive larger average fees and expanded geographical coverage. |
Financial Restructuring revenue | +6% YoY | Financial Restructuring revenue modestly increased from $155.31M to $164.59M. The incremental growth is attributed to steady deal flow and improvements in transaction execution, albeit at a lower rate compared to Corporate Finance, in line with historical trends for this segment during periods of stable restructuring market conditions. |
Financial & Valuation Advisory revenue | +15% YoY | Financial & Valuation Advisory revenue grew from $77.45M to $89.15M as a result of increased fee events and higher average fees per engagement, reflecting enhanced client activity and a continued improvement in the M&A climate from prior periods. |
U.S. geographic revenue | +42% YoY | U.S. revenue jumped from $331.00M to $470.66M primarily due to an extremely strong domestic performance. This growth builds on prior quarter momentum in Corporate Finance and other segments, supported by favorable macroeconomic conditions and strategic acquisitions boosting the domestic footprint. |
Operating Income | +36% YoY | Operating income increased from $102.70M to $139.21M driven by the significant revenue uptick and disciplined cost management. Enhanced revenue mix and operational efficiency, evident from previous period adjustments, directly contributed to this robust expansion in operating profitability. |
Net Income | +50% YoY | Net Income expanded from $81.08M to $121.92M reflecting strong bottom-line improvement. The larger percentage gain relative to operating income is due to effective expense control, favorable tax rate adjustments, and the compounding impact of higher revenues across all business segments built upon earlier quarter trends. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Non-Compensation Expenses | Q4 2025 | Expected to grow at a high single-digit percentage in Q4 2025 vs Q4 2024 | No guidance | no current guidance |
Adjusted Compensation Expense Ratio | Long-term | Long-term target of 61.5% | No guidance | no current guidance |
Adjusted Effective Tax Rate | FY2025 | Expected to settle between 31% and 32% for full FY2025 | No guidance | no current guidance |
Seasonality in Revenue | FY2025 | Approximately 46% in H1 and 54% in H2 for FY2025 | No guidance | no current guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Non-Compensation Expenses | Q4 2025 | Expected to grow at a high single-digit percentage in Q4 2025 from Q4 2024 | Grew ~33% from US$88,234k (Q4 2024 = 417,759 total OpEx − 329,525 comp) to US$117,367k (Q4 2025 = 527,217 total OpEx − 409,850 comp) | Missed |
Adjusted Compensation Expense Ratio | FY 2025 | Expected to maintain a long-term target of 61.5% | 61.5% (calculated from total comp ÷ total revenue using Q1–Q4 2025 data) | Met |
Adjusted Effective Tax Rate | FY 2025 | Expected between 31% and 32% | 24.8% (131,624 total provision ÷ 531,335 total pretax income, summing Q1–Q4 2025) | Beat |
Seasonality in Revenue | FY 2025 | ~46% in the first half and ~54% in the second half of FY 2025 | ~45.6% in H1 (513,609 + 574,957) vs. ~54.4% in H2 (634,428 + 666,422) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Corporate Finance Growth | Q1: Revenues of $328M with a 45% increase and record first‐quarter performance. Q2: Revenues of $364M reflecting a 29% increase and higher transaction volumes. Q3: Revenues of $422M with a 36% increase and strong transaction metrics. | Q4: Revenues of $413M with a 44% increase, driven by more transactions and higher fees despite typical seasonal decline. | Consistently strong growth across periods, with seasonal fluctuations noted in Q4. |
Restructuring Business Dynamics and Interest Rate Sensitivity | Q1: High restructuring revenues driven by elevated interest rates and political dislocation, with elevated activity partially attributed to accelerated refinancing. Q2: Sustained elevated activity with elongated time frames but attractive pipeline amid high rates. Q3: Restructuring performance modestly up (2% increase) with robust demand in a high-rate environment. | Q4: Elevated restructuring activity continues with strong multiyear cycle signals, improved fee dynamics, and significant capacity for handling complex deals. | Restructuring remains resilient and elevated, with capacity for more complex deals as high interest rates persist. |
Mid-Market M&A Resilience | Q1: Robust middle-market activity driven by aggressive capital deployment in the middle market. Q2: Improved M&A sentiment in the mid-market with growing activity despite elongated transaction times. Q3: Noted structural resilience and ability to take market share, with broad-based recovery across regions. | Q4: Continued emphasis on mid-market M&A resilience, with mid-cap volumes remaining less affected by broader volatility and reinforcing the firm’s focus. | Consistent resilience in the mid-market segment, serving as a stable growth pillar despite market fluctuations. |
Geographic Diversification and Regional Disparities | Q1: Europe’s gradual recovery and improved reputation contributed to enhancing deal size and fees. Q2: Limited focus, with mention of the U.K.-based Prytania Solutions acquisition to boost non-U.S. business. Q3: Broad engagement across North America, Europe, and Asia, with consistent client dialogue. | Q4: Strong non-U.S. performance with significant market share gains, improved transaction sizes, and enhanced brand perception outside the U.S.. | Steady improvement in geographic diversification, with a clear strategic emphasis on growing non-U.S. business. |
Market Uncertainty and Economic/Regulatory Headwinds | Q1: Acknowledged macro uncertainty with challenges from high interest rates and political dislocation. Q2: Highlighted geopolitical risks and elongated transaction timelines amid cautious market recovery. Q3: Recognized a dampening regulatory environment alongside signs of improved overall deal sentiment. | Q4: Discussed pronounced market volatility and regulatory headwinds; despite uncertainties, the firm emphasized its resilient, diversified business model. | Persistent uncertainty remains, but cautious optimism prevails as the diversified model helps balance headwinds. |
Strategic Acquisitions and Service Expansion Initiatives | Q1: Completed the Triago acquisition, expanding private funds capabilities and emphasizing inorganic growth. Q2: Advanced with acquisitions (Prytania Solutions, Waller Helms) and integrated Triago to bolster capital markets. Q3: Continued active acquisitions (Waller Helms) and service expansion in private capital financing. | Q4: Executed three acquisitions and rebranded the capital markets business to Capital Solutions, further broadening industry, geographic, and product reach. | A continuous strategic focus on acquisitions and service expansion drives sustained growth and diversification. |
Competitive Pressures and Integration Challenges | Q2: Minor mentions regarding the integration process of acquisitions and attention to senior talent alignment. Q1, Q3: No significant focus on competitive pressures or integration hurdles noted. | Q4: No commentary on competitive pressures or integration challenges was provided. | Not a prominent topic; integration issues and competitive pressures remain low-profile and are not a major focus. |
Variable Transaction Closing Times and Deal Velocity Concerns | Q1: Noted improvements in transaction closing times despite remaining above historical norms, with clarity on delays due to additional information/schedule needs. Q2: Mentioned elongated closing times and gradual improvement in overall deal velocity. Q3: Discussed improving transaction velocity, though not yet back to pre-pandemic levels. | Q4: Emphasized that deal processes are proceeding at a normal rate with steady, quarter-by-quarter improvements, while acknowledging variable impacts across sectors and geographies. | Gradual improvement in deal velocity across quarters, though closing times still lag behind historical standards. |
Private Funds and FVA Segments | Q1: Emphasized expansion of the Private Funds business through the Triago acquisition and highlighted positive FVA performance with growth in portfolio valuation. Q2 & Q3: No indication of decreased strategic focus; emphasis remained on growth and expansion. | Q4: Continued positive momentum in FVA with increased revenues and consistent business performance, with no mention of reduced emphasis on private funds. | No reduction observed; strategic focus on Private Funds and FVA segments remains strong and growth-oriented. |
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Corporate Finance Outlook
Q: How are deal backlogs trending?
A: Management noted that deal backlogs are strong and growing, with mid-market volumes proving more resilient than large-cap deals and improved throughput overall. -
Restructuring Mix
Q: Are restructurings shifting toward liability management?
A: They expect restructurings to remain elevated, with a mix of liability management and other restructuring approaches, reflecting persistent market activity. -
Restructuring Capacity
Q: Can the team handle a more stressed market?
A: The restructuring group generated $9.5M per MD, though historical levels were 40% higher during the Great Recession, indicating ample capacity to capture higher fees if conditions worsen. -
Acquisition Pipeline
Q: What about bolt-on acquisitions for next year?
A: Management is actively engaging in strategic bolt-on opportunities, expecting a robust pipeline to continue driving growth into fiscal '26. -
Capital Solutions
Q: How is the private capital business performing?
A: Capital Solutions is a growing, significant part of the business, benefiting from diverse capital flows and alternative funding trends amid evolving market conditions. -
FVA Dynamics
Q: What’s driving improved FVA revenues?
A: Consistent growth in portfolio valuation services and fee-based opinion work, amid non-cyclical demand, is underpinning the rise in FVA revenues. -
Market Segments
Q: Are tariffs affecting sectors like industrials?
A: Tariffs impact sectors unevenly; while some industrial segments are affected, others remain less influenced depending on geography and market focus. -
Revenue Tracking
Q: How are revenues trending this quarter?
A: Revenues are maintaining a steady pace with normal pitch-level activity, though early quarter details are too preliminary for concrete numbers. -
Restructuring Inbounds
Q: Is there an increase in restructuring inbound activity?
A: Early conversations indicate some uptick in restructuring interest, but it remains too soon to tell if this will impact near-term results. -
Europe Outlook
Q: What’s the outlook for non-U.S. M&A?
A: Management is positive on European mid-market activity, noting that non-U.S. deals face less volatility from U.S. factors, which should support steady growth.
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