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FTI Consulting, Inc., established as an expert witness service provider, has gained national recognition by helping troubled companies with forensic accounting and litigation support services. When the stormy seas of corporate scandal began to subside so did FTI's main source of income. In response the firm has begun to broaden its consulting services and enter international markets.
Consultants Creating Opportunity: 1982-97
Daniel W. Luczak and Joseph R. Reynolds, Jr., both engineers, founded Forensic Technologies International Corporation in 1982, making the transition from consultants to a full-time business operation. Initially, the pair assisted lawyers with expert witnesses, paper management, and jury psychology, according to the Washington Post.
In 1986, the firm established a West Coast office. Its focus was the development of computer-generated animations for courtroom use. The firm would pay nearly $600,000 for computers to start the endeavor and then needed to sell lawyers on the concept. Meanwhile, on the other side of the country, the Annapolis office geared up its visual communications capability. The dual endeavors were the genesis of the company's litigation communications services business.
Forensic Technologies was hired in 1988 by the State of Illinois to determine the cause and origin of a central telephone office fire and make recommendations geared to prevent future disasters. The firm earned its first multimillion-dollar fee for a single matter event. The next year, a product defect case in the construction industry with an exposure in excess of $1 billion elevated Forensic Technologies' reputation as provider of complex technical investigations and litigation services.
Original outside investors stepped aside with the completion of a senior management buyout in 1992. Jack Dunn, formerly a managing director with an investment, came aboard to direct an acquisition and expansion drive. Also during the year, a Chicago office opened, bringing litigation, communications, jury consulting, and engineering services to the Midwest.
In May 1996, Forensic Technologies completed an initial public offering to fund the purchase of complementary companies. The firm raised $11.1 million on the NASDAQ, becoming one of the first public litigation-support services companies, according to the Washington Post.
A 1997 acquisition of an insurance claims management firm brought the company into a new line of business. A trial reach and consulting firm also was acquired that year. The addition of the new businesses plus internal growth boosted total revenue to $44.2 million, $13.6 million more than generated in 1996. A total of 46 percent of the company's 1997 revenue came from the company's visual communication services, such as computer animations and graphic illustrations.
New Name Reflecting New Lines of Business: 1997-2001
In light of ever expanding offerings, the firm changed its name to FTI Consulting, Inc. during 1998. FTI entered the world of financial consulting that year with the purchase of Virginia-based Klick, Kent and Allen Inc. and New York City-based Kahn Consulting Inc. The Applied Sciences division's investigation and analysis capability grew with the addition of Ohio-based S.E.A., Inc. Business Week named FTI one of its small "Hot Growth Companies."
In 1999, FTI stock began trading on the American Stock Exchange.
In February 2000, FTI acquired a company with a specialty in airline bankruptcies, New Jersey-based Policano & Manzo. The $50 million stock and cash deal propelled it into the ranks of U.S. financial restructuring leaders. Robert Manzo and Michael Policano gained 5.1 percent of FTI stock each and the distinction as the company's largest individual stockholders. FTI's Financial Consulting division opened offices in four major U.S. cities and began a healthcare consulting and healthcare fraud investigation practice out of its expanded New York office. The Litigation Consulting division also expanded into New York City.
When FTI shifted its emphasis to financially troubled companies in 1998, the company grew and drew the interest of Wall Street. Inclusion in the Russell 2000 index, beginning in 2000, increased its visibility among institutional investors. FTI Consulting Inc.'s fortunes rose as others' declined.
"It helped analyze evidence for O.J. Simpson's defense. One of its experts was central to the defense of Shane S. DeLeon, who was convicted last year in the hit-and-run death of American University student Matthew Odell. FTI's software for courtroom evidence display was used by lawyers for George W. Bush in a Tallahassee trial that was key to the outcome of the presidential election," Terrence O'Hara wrote in the Washington Post in August 2001.
Financial accounting now brought in about 50 percent of FTI's revenues and more than three-quarters of the company's core earnings. FTI was up against workout specialists, such as Los Angeles-based Houlihan Lokey Howard & Zukin, as well as giant accounting firms including Ernst & Young, for business. Its ability to compete was dependent on retaining the myriad of lawyers, accountants, and scientists brought into its ranks by way of acquisitions.
The restructuring segment of the business helped 2001 results beat those of 2000. Earnings climbed from $2.6 million to $16.5 million on revenue of $135 million and $166.4 million, respectively.
A Change in Course: 2002-05
FTI moved to buy PricewaterhouseCoopers' bankruptcy, turnaround, and business restructuring services division in 2002. The U.S. Business Recovery Services operation, a leading bankruptcy, turnaround, and business restructuring service provider with more than 350 employees, practiced across the country, including in New York, Dallas, Los Angeles, Chicago, and Atlanta. FTI planned to sell its low-performing Applied Sciences division, which investigated accidents for corporate clients, to avoid conflict of interest with the clients gained in the PricewaterhouseCoopers purchase and reduce the incurred debt. FTI completed the acquisition in September 2002 for $145 million in cash and three million company shares.
The purchase helped boost 2002 profits to $34.9 million from $12.9 million in 2001. The scrutiny of accounting firms by the Securities and Exchange Commission (SEC) had served to aid FTI's growth spurt. Conflict of interest issues had the industry splitting off their recovery practices. During 2002 FTI benefited from record bankruptcy levels, increasing 6 percent to 1.58 million with 38,540 from businesses.
But as the economy improved, FTI's stock price began to slide. Investors were concerned with the firm's dependency on the bankruptcy services side of its business for revenue and earnings, with about 70 percent of its business tied to restructuring. After its Applied Sciences division was divested, FTI's remaining businesses included bankruptcy services, forensic accounting, and litigation services.
In 2003, FTI bought an SEC investigation specialist, a dispute advisory operation, and competing economic consulting business. In October a London office opened. The European practice opened the door to a less crowded market. Fewer U.S. technology and telecom businesses were in need of restructuring while more competitors had entered the industry during the onslaught of business failures. Moreover, the U.S. economy was on the road to recovery. But changing conditions in Europe led restructuring businesses to look across the pond and in Asia for troubled companies, according to Investment Dealers' Digest.
News of the resignation of 13 managing directors resulted in a significant downturn in FTI's stock price in January 2004. The directors, all from Policano & Manzo, had accounted for as much as 21 percent of FTI's cash flow. Wall Street was concerned with the company's ability to retain other key people.
By mid-year 2004, net income as well as stock price was on the slide as corporate America reined in accounting or governance failings--FTI had done work for WorldCom, Adelphia, and Enron. In response FTI had set its sights on building its economic consulting business and conventional corporate restructuring.
In the spring of 2005, FTI bought Cambio Health Solutions, adding hospital restructuring to its list of services. A combination of problems, such as high capital costs and reduced Medicaid reimbursements, was sending single nonprofit hospitals into restructuring or seeking a buyer and FTI was positioning itself to help out, according to a May 2005 Corporate Financing Week article. FTI was expected to expand its consulting business to more industries.
In July, FTI said it planned to make its first foray into the public debt market. Lizzie Newland reported for the Knight-Ridder Tribune Business News on July 20, 2005, "Besides providing fuel for acquisitions, the $300 million from the debt offering would allow FTI to be much more aggressive in its stock repurchase program, which is set to end in October."
In September, FTI revealed plans to relocate headquarters from Annapolis to Baltimore. Driven by growth, the move was planned for mid-December. In November, FTI announced an agreement to purchase economics consulting firm Competition Policy Associates, Inc. The acquisition, valued at approximately $70 million, added "depth and breadth in the anti-trust, merger/acquisition, regulatory, healthcare and financial arenas" and opened the way for new opportunities internationally, top executives explained in a PR Newswire article. The deal was expected to be completed in early 2006.
Principal Competitors
CRA International, Inc.; LECG Corporation; Navigant Consulting, Inc.
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