Houlihan Lokey Inc. is seeking to work more with U.S. financial technology firms as part of an expanded focus on the sector, two newly hired investment bankers said.
The Los Angeles-based global investment bank already has a fintech team in London, from Houlihan's April 2018 acquisition of corporate finance adviser Quayle Munro Ltd. Houlihan has 35 bankers globally that touch deals involving fintech companies, 28 in London and now seven in the U.S. Earlier this year, Houlihan added two i-bankers to expand its fintech focus into North America: Rob Freiman, based in New York, and Kegan Greene, based in San Francisco.
"We have people that have been touching on [fintech], but no one who has recently been the point person with deep expertise in the area," Freiman said in an interview.
Freiman will focus mostly on banking technology and payments technology, including payment processors, merchant and issuer processors, and software and tangential services. Greene will focus on insurance technology and related ancillary areas of fintech such as real estate technology. Greene called Houlihan's new focus on North American fintech a "natural expansion" following the Quayle acquisition.
When asked why they chose to join Houlihan specifically, both i-bankers highlighted a centralized group within the company that manages relationships with private equity firms, also known as financial sponsors. Private equity firms tend to work across a number of sectors, so some investment banks have a group to touch base with the sponsors on a regular basis as opposed to requiring the individual i-bankers to maintain those relationships. Those relationships matter in the space because more than half of the largest fintech deals since January 2018 involved a sponsor, whether that was a selling investor or a private equity firm coming in as an acquirer.
"That connectivity to the sponsor universe was highly attractive because there are so many sponsors out there that are interested in financial technology," Freiman said. "They know it's a growing area, and it's a space that more and more dollars are pouring into."
The fintech sector has also seen some massive strategic acquisitions this year. The three completed megamergers in merchant and issuer processing in early 2019 — Fiserv Inc.'s $29.86 billion purchase of First Data Corp., Fidelity National Information Services Inc.'s $42.66 billion deal for Worldpay Inc., and Global Payments Inc.'s $23.98 billion acquisition of Total System Services Inc. — will not be the last of the large fintech deals, the i-bankers said. Growth at those companies had slowed, so they consolidated to increase scale. But once they integrate those transactions, the combined companies will turn back to vertically integrated software activities, Freiman said.
Multibillion-dollar deals will also persist in insurtech, Green said, noting that it remains to be seen whether buyers will be traditional carriers, digital managing underwriting agents or even software businesses. Two of the largest recent insurtech deals came in 2018 with Carlyle Group LP's $6.70 billion acquisition of Sedgwick Claims Management Services Inc. and Verscend Technologies Inc.'s $4.35 billion acquisition of Cotiviti Holdings Inc.
Software, data and analytics, and cost reduction made up insurtech's first wave of innovation, Greene said in an interview. Next up will be companies such as Lemonade Inc., Oscar Insurance Corp. and Metromile Inc. that actually disrupt the "ancient industry" of insurance, he added, although he noted that the impact these companies are having on the industry is still unproven.
"There's a lot of excitement about those businesses," Greene said.
About 80% of Houlihan's deals fall in the midcap segment, ranging from a couple hundred million dollars to a billion dollars, said John Gallagher, director of media relations. About 15% of deals fall below that threshold, while about 5% of Houlihan's deals are larger than a billion dollars. Both new i-bankers said they expect to work on deals within that midcap range.
