Houlihan Lokey revamps government group

Investment bank Houlihan Lokey has quickly rebuilt its government services team in the wake of the imminent departure of two of its long time bankers.

Jean Stack and John Song reportedly are in the process of leaving Houlihan Lokey, according to a report by Reuters earlier this month. Both Stack and Song have declined requests for comment. According to Reuters, they are joining investment bank Robert W. Baird.

Their soon-to-be former boss, Anita Antenucci, also declined to comment about their departture.

The pending loss of Stack and Song is no small matter. Stack has been at the Los Angeles-based firm for over 20 years and was a founding member and co-head of Houlihan Lokey's government group. Song has been with the firm for over 10 years.

Stack and Song were deeply involved in some of the firm’s bigger deals. Over the past year that has included the sale of InfoZen to ManTech International and the sale of Praxis Engineering to CSRA.

But Antenucci wasted little time after learning that Stack and Song were to depart.

She reached out to a former co-worker in John Allen, co-founder and CEO of Bluestone Capital Partners.

“I called John (on) Dec. 1 and talked to him about considering this as a next step,” Antenucci told me.

Allen and Antenucci worked together under Jon Kutler at Quarterdeck Investment Partners, where they were co-presidents. When Quarterdeck was sold to Jefferies, Allen joined Rick Knop and helped form the Windsor Group. Windsor was later sold to BB&T.

In 2010, Allen founded his own firm in Bluestone Capital Partners. Antenucci then left for Houlihan Lokey where she now runs the aerospace, defense and government Group.

It has been 15 years since the pair worked together.

“But this is about more than a reunion,” Allen told me. “We are taking experience and adding experience and creating the most experienced group in the market.”

With the pace of merger-and-acquisition deals picking up in the market, Houlihan Lokey could ill afford to have a weakened government services group.

With the addition of Allen and his team from Bluestone, Houlihan Lokey’s government group now numbers 30. That group is split between the Washington, D.C. area and Los Angeles. There also is an office in London.

Coming over to Houlihan Lokey is all of Bluestone: Allen, co-founder Susan Gabay and partner Greg Van Beuren. The three will be managing directors in Houlihan Lokey’s ADG group. Also joining from Bluestone is Vice President Garrett Asta and a group of analysts.

Bluestone essentially will cease to exist, Allen said.

Allen, Gabay and Van Beuren have been involved in more than 150 deals including transactions in the past year such as Enlighten IT Consulting to MacAulay Brown, Belcan's purchase of the Kemtah Group, and the acquisition of Owl Computing Technologies Inc. by QRC Technologies. 2017 saw Bluestone announce nine deals.

The move from a boutique M&A firm to a large, international investment bank was too hard to resist for Allen and his Bluestone team. Especially considering all of the changes in the market.

“The market is much, much more sophisticated now,” he said in looking back over his 25-year career.

There used to be just a handful of private equity firms in the market and now there are dozens. Allen estimated 100 different private equity firms have investments in the government market.

The structure of deals and the kind of debt and capital structuring both buyers and sellers want is also much more complicated and dynamic.

“You need that bigger platform,” Allen said.

Clients are demanding more from their investment bankers, Antenucci said.

“They want their investment banker to have insights into how to tap capital markets and the public markets,” she said.

They also want expertise from outside the traditional government services market such as health care, broad IT services and commercial services, she added.

She said she expects the pace of deals and the complexity to increase. One of the more prominent examples she cited as the increased use of Reverse Morris Trusts, which allow public companies to spin-off divisions as well as make acquisitions of companies with fewer tax implications.

“Because of the cash flow patterns RMTs are perfect fit in the market,” she said.

Houlihan Lokey has been involved in several of those deals such as Lockheed Martin’s divestiture of its IT business to Leidos.

“Joining Houlihan allows us to offer more depth,” Allen said. “I see a long list of things we can add for our clients.”