January 28, 2011 –At first blush, Houlihan Lokey may appear to be a specialist in middle-market companies, but as its co-chief executive, Jeff Werbalowsky, will tell you, its work goes well beyond that.

"While our corporate finance group targets the middle market," its financial advisory services "and restructuring groups are very active in the larger end of the market as well and are normally involved in the biggest deals in the world," Werbalowsky said after his firm received IDD's Mid-Market Bank of the Year award.

Like many boutique or middle-market investment banks, the four-decade old firm brought in more talent during the credit crisis. It has added 30 senior bankers over the last two years. It filled a major void and augmented its capital services capabilities in May through a joint marketing alliance with the electronic trader Knight Capital, and it established a foothold in India and Southeast Asia in July with a strategic investment in the Mumbai investment bank Avista Advisory Group.

"Those are three very exciting things that occurred in 2010 and will carry into 2011," said Scott Adelson, a senior managing director and co-head of corporate financing.

Werbalowsky admitted that expanding the staff in a difficult financial environment was not easy. "Out of the depths of 2009, we figured this was the time to expand in corporate finance and FAS, where there was a lot of disappointed and dispirited talent looking for a better and more stable place to build their careers," he said. "However, it is fiscally and emotionally difficult to hire aggressively when your own dollars aren't expanding in an area and prospects look bleak."

Houlihan and its largest shareholder, Orix Corp. of Japan, though, believed it was time to build up those areas, and they "made a strategic and financial commitment in those embattled segments," Werbalowsky said.

Last year, Houlihan remained the most prolific middle-market financial adviser in the U.S., according to Thomson Reuters. It completed 111 such deals three fewer than it did in 2009 but 23 more than runner-up Goldman Sachs. Those 111 deals were worth $6.6 billion and generated $177.6 million of fees for the firm.

"Going into 2010, we faced a threefold challenge: to overcome the difficulties in the market and opportunistically build our business in corporate finance and FAS; to aggressively work for our restructuring clients and translate an improving economy into higher recoveries for them; and to continue our international expansion in the face of retrenchment from many of our competitors," Werbalowsky said.

Restructuring has always been a Houlihan sweet spot, he said. "In difficult years like 2009, well over half our business is restructuring. In 'bullish years,' it's well under 50%." Worldwide, as of mid-January, the firm was working on about 45 restructuring transactions in and out of court.

Houlihan ranked second among advisers of distressed companies worldwide last year, when, said Dealogic, the global restructuring market declined 6.2%, and advisers working with troubled companies were involved with $305.1 billion of deals.

The corporate workout pros at Houlihan will tell you the March balance-sheet recapitalization of Education Media and Publishing Group - the world's largest publisher of educational materials for pre-kindergarten through grade 12 - was one of their most noteworthy assignments. Houlihan was the exclusive financial adviser to EMPG's bank debtholders.

Also, Houlihan was the exclusive financial adviser to the official unsecured creditors committee in the bankruptcy case of real estate investment trust General Growth Properties.

Last year, Houlihan advised Diedrich Coffee on its May sale to Green Mountain Coffee Roasters for $290 million, or $35 per share. The deal featured a bidding war between Green Mountain and Peet's Coffee & Tea, along with a Federal Trade Commission antitrust challenge of Green Mountain's bid.

"Our performance in Asia has a long way to go, although we've made some good hires," says Werbalowsky.

Last summer, Houlihan purchased Red Pine Advisors, a two-and-a-half-year-old New York firm that values complex structured securities. When it announced the deal, Houlihan said it anticipated a steady pickup in demand for independent assessments of securities held by banks, hedge funds and insurers.

Werbalowsky envisions a bigger international operation. In December, his firm hired Marc Ellegaard as head of FAS business development for Europe, the Middle East and Africa, and Nicolas Zintl in Frankfurt, was tasked with expanding the merger and acquisition advisory business in Germany.

"We are committed to doing more business in Europe generally," Werbalowsky said. "Goldman, Oak Tree, Fortress, Centerbridge, TPG - their investment environment is the entire world. We need to be where they are. We've taken gradual steps into India and Singapore through a strategic minority investment in Avista. We have offices in Tokyo, Beijing and Hong Kong, but our performance in Asia has a long way to go, although we've made some good hires and are getting traction."

Last year, Houlihan hired Eileen Kamerick as its chief financial officer and Jake Foley as a managing director in the financial sponsors coverage group.

Werbalowsky says it wants to cover more middle-market private-equity firms. "Over the last five years, we've substantially ramped up our coverage, but we want to do a better job."