Houlihan Lokey, Knight Capital To Join Forces
May 17 2010 - 5:08PM
Dow Jones News
Houlihan Lokey and Knight Capital Group Inc. (NITE) will
announce a joint marketing alliance Tuesday that will marry the
core investment banking and trading businesses of the two firms,
but maintain their independence.
The partnership, while it stops short of a joint venture, gives
Houlihan a broader reach for its capital markets business and
provides Knight with access to companies looking to pursue debt or
equity transactions. It also helps Knight, a Jersey City,
N.J.-based electronic trader, enhance its fixed-income
operations.
The deal comes as Wall Street firms such as Goldman Sachs Group
(GS) have come under scrutiny for potential conflicts between their
trading and other businesses. Both Houlihan and Knight entered into
a fee-sharing agreement, yet will keep their businesses
separate.
In an interview with Dow Jones Newswires, Scott Adelson, senior
managing director and co-head of corporate finance at Houlihan
Lokey, said sales and trading and investment banking have "little
interaction."
He said the benefits of combining such businesses have been
greatly reduced. Instead, Houlihan recognized a broader
distribution network within capital markets was "the missing piece"
within its business model and could be obtained from the
outside.
Houlihan has already been strengthening its ability to provide
debt financing to clients, adding Libra Securities and all of its
professionals last November.
While Houlihan provided advice in mergers and acquisitions and
restructuring services for clients, "it didn't a offer meaningful
amount of capital markets advice," Adelson said.
After considering other partners and options including building
up its own sales and trading business, Houlihan ultimately decided
such a project would be too expensive. Knight Capital, which
already had market access and trade execution services, was a more
viable option.
In one such example, Houlihan Lokey co-managed THL Credit Inc.'s
(TCRD) common stock offering of 15.3 million shares on April 21.
Adelson cites access to Knight's distribution channel as one reason
Houlihan assisted with the deal.
"Their accounts are predominantly on the buy side, our accounts
are predominantly issuers," Adelson said.
Gary Katcher, head of global fixed income for Knight Capital,
said "in the past, [Houlihan] gave advice and couldn't provide the
financing capability...We could [provide] the financing capability,
but didn't give the advice, when you put them together now, it
works quite well."
Knight Capital has been pursuing its own growth in fixed income,
adding more than 220 professionals last year. This has become a
popular growth area within financial services, boosting banks'
profits because of the high margins.
Katcher says the Houlihan deal will help Knight "be more
relevant to clients" and allow the firm to provide new issue
products.
Houlihan and Knight Capital plans to share fees from potential
transactions "where appropriate," Adelson says, but he declined to
provide further details.
-By Brett Philbin, Dow Jones Newswires; 212-416-2173;
brett.philbin@dowjones.com
(Joe Bel Bruno in New York contributed to this article.)
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