Houlihan Smith & Company - History

History

Houlihan Smith & Company was established in 1996 by Richard Alfred Houlihan (former chairman of Houlihan Lokey Howard & Zukin Inc.) and mergers and acquisitions advisor Andrew David Smith. The two met in the early 1990s while Mr. Smith was employed with Kemper Securities (now part of Wachovia Bank) and together they sold a software company where Mr. Houlihan was chairman. The two partners formed Houlihan Smith as a multi-service investment bank with strong underpinnings in the fields of complex business valuation and M&A deal-making.

The firm’s largest financial opinion was a solvency opinion provided to Reliant Energy, with its $12 billion financial restructuring. Since then, Houlihan Smith has performed more than 400 valuations and financial opinions each year. Houlihan and Smith each own 25-50% of the firm, while Charles Botchway owns 10-25% of the firm.

The increased pressure and scrutiny placed on boards of directors, special committees and key executives led Houlihan to offer fiduciary guidance for its clients through the Houlihan Smith Compendia Series, a compilation of case law that highlights actions and judgments where fiduciaries breached their duty of care and duty of loyalty. The Fairness Compendium and the Solvency Compendium communicate the stringent guidelines that fiduciaries must follow, including the business judgment rule, and the more prevalent Entire Fairness Standard. Under the Entire Fairness Standard, where a transaction involves a conflict of interest and has been contested by minority shareholders, directors bear the burden of proving the entire fairness of the transaction. Many directors and fiduciaries must take considerable measures to ensure that actions and judgment shift the burden of proof to shareholders. A common measure taken is the formation of an independent and disinterested special committee to oversee and negotiate the transaction process.

During the mid-2000s, Houlihan Smith extended its services into portfolio valuation, complex derivatives valuation and investment advisory for hedge funds, private equity groups and other alternative investment groups. A recent accounting pronouncement, Financial Accounting Standard No. 157 (FAS 157): Fair Value Measurements, has mandated the quarterly and annual reporting of fair value for companies and investment firms. The three-tiered fair value hierarchy is composed of the following observable inputs: Level 1, Level 2, and Level 3. Level 3 Inputs are typically hard-to-value, illiquid securities that require the use of an independent valuation advisor to opine on the value of these securities.