FTI bolsters bankruptcy services unit

Division being acquired from Pricewaterhouse

Price is about $230 million

Annapolis consulting firm posts record earnings

July 25, 2002|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Boosting its corporate clientele list, Annapolis-based FTI Consulting Inc. said yesterday that it will buy PricerwaterhouseCoopers' bankruptcy, turnaround and business restructuring services division in New York City for $229.7 million in cash and stock.

The purchase price will include $140 million in cash and 3 million shares of common stock, worth $89.7 million based on FTI's closing price of $29.92 yesterday on the New York Stock Exchange.

The purchase of U.S. Business Recovery Services Division (BRS) would bring FTI more than 350 employees in 15 offices across the country, with significant practices in New York, Dallas, Los Angeles, Chicago and Atlanta. FTI has 650 employees, including 40 in Maryland's capital.

The planned acquisition was announced as FTI reported record second-quarter earnings. The company, which specializes in turnaround and bankruptcy services, has reported 13 straight quarters of record earnings.

"We recognized that the move by PwC to unbundle its audit and consulting services presented a tremendous opportunity for us to take our company to the next level and significantly accelerate our growth plan," said FTI Chairman and Chief Executive Officer Jack Dunn.

"This quarter's results reaffirm our decision four years ago to become a first-class consulting company. Combined with the success of our new initiatives and our news on the acquisition front, I think the signs are that we are well on the way to achieving that goal."

FTI, created 20 years ago as a business investigating accidents, fires and train wrecks, provides litigation and claims management consulting to corporations, law firms and insurance firms. Its fastest growing and most profitable business is the financial services segment, which involves restructuring and bankruptcy work. The company went public in 1996.

FTI has worked with companies such as Kmart, PSINet, Sunbeam, Polaroid and Enron Corp., said FTI President Stewart Kahn.

The purchase of BRS will complement FTI's bankruptcy work, which often involves helping lenders recover loans they made to troubled companies, Kahn said. The BRS acquisition will give FTI direct access to corporate clients.

"This is very exciting for us," Kahn said. "It takes us to a whole new level. We will be far and away the largest provider of these services."

The acquisition, which is subject to U.S. Justice Department review, is expected to close in the third quarter of this year and immediately add to earnings. The cash portion of the purchase price will be financed by FTI's cash and a new senior bank credit facility, which will consist of a term loan of about $75 million and a revolving credit line.

FTI is exploring the sale of its Applied Sciences Division, which investigates accidents for corporate clients. Proceeds from the sale, which could be completed in the fourth quarter, would be used to reduce the debt incurred in the purchase of BRS.

"The business we are acquiring has a lot of corporate clients, and we're afraid it might have conflicts with our Applied Sciences Division," Kahn said. "As you know, conflicts are not a good thing."

Yesterday, FTI reported that its net income jumped 59.5 percent, to $6.7 million, or 31 cents a share in the second quarter, which ended June 30. That was up from $4.2 million, or 22 cents a share, in the second quarter of last year. Revenue increased 21.1 percent, to $51.1 million from $42.2 million, in the corresponding period last year. Wall Street analysts had expected earnings of 29 cents to 31 cents a share.

"These guys have been doing a pretty darn good job in building their business," said Adam Waldo, a business and professional services analyst for Lehman Bros. "It's fair to say they've beat Street consensus yet again. It's also fair to say, their earnings are very much a mirror image of the last several quarters, with the financial consulting service unit leading the way.

"They continue to do exceptionally well in a tough economy."

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