Houlihan Lokey has weathered the dealmaking drought better than most investment banks. Its share price surged 37 percent last year and executives credit the bank’s diversified business model, much of it built on acquisitions. Recently, it beefed up its placement agent services with the acquisition of Paris-based Triago Management Development, a specialist in the tiny but growing direct placement niche. Houlihan’s Andy Lund tells us more.
Since its IPO in 2015, Houlihan has made more than a dozen acquisitions. That includes adding fundraising services in 2018 when it purchased placement agent BearTooth, co-founded by Lund and Cristina Forcina Westermann. Lund and Westermann now co-lead HL’s private fund group, which will absorb Triago and its workforce of about 50.
The independent sponsor market has grown to about $20 billion, small considering traditional U.S. private equity shops raised a combined $373 billion in 2022. But finding investors for “directs” has transformed placement agent Triago’s business during the last two years and its what first caught the attention of Houlihan.
The niche, in which Triago dominates, is booming: fewer than $1 billion in directs closed a little more than five years ago.
“A growing market has emerged for direct-deal investing,” Lund says. “It’s a very profitable part of the business with a very powerful growth trajectory,” Lund says. “Once we got a look under the hood, it was a no-brainer.”
Triago’s direct raises typically start at around $50 million and the target company is usually in the lower middle market with Ebitda of at least $10 million, though the firm says it’s flexible and will consider deals individually.
Matt Swain, at the age of 27, launched Triago’s direct placement business shortly after joining as an associate in 2019. By 2021, he was credited with growing North American revenues by 300 percent. He was appointed in 2022 to the newly created position of global chief executive, reporting to firm founder Antoine Drean.
The Triago name will disappear as the placement agent is subsumed into Houlihan once the transaction closes later this year. Swain will head the newly created direct placements and secondaries practice in Houlihan’s private funds group. Drean, who launched Triago in 1992, was named chairman emeritus and will serve as a consultant and entree to the French financial community where he is deeply embedded.
With traditional fundraising lagging and dealmaking stalled in general, vehicles such as continuation funds, LP-led secondaries and other alternative transactions have grown in popularity. That includes direct placement.
Lund says Triago’s fundraising experience for secondaries was also attractive, especially with LP-led transactions. Houlihan’s effort on that front has been nascent.
According to Refinitiv, Houlihan was the top middle-market investment bank in 2022, advising on 381 global M&A transactions under $1 billion. Rothschild was second in that category, advising on 369 sub-$1 billion transactions.
Houlihan’s chief financial officer Lindsey Alley said during a recent earnings call that the bank will continue its acquisition strategy, though Lund says the private funds group doesn’t have any near-term acquisition plans.
Instead, Lund says the private fund group is expected to announce several key hires in the near-term while it prepares for 2024 and a rebound in dealmaking and primary fundraising.
“The primary side has always been a key part of our business,” Lund says. “It’s been a tough gig recently, but after two very difficult years, the market is poised to change. We anticipate the primary market is going to come back to life very quickly and we are very well positioned to capitalize on that.”
Contact Lund at [email protected].
