FTI steps up pace of growth

Accounting consultant capitalizes as scandals mount

September 12, 2006|By Allison Connolly | Allison Connolly,Sun reporter

During the corporate scandals at Enron and WorldCom, Baltimore-based FTI Consulting Inc. was there. And now it's smack in the middle of the next big corporate accounting scandal, the backdating of stock option grants.

"They probably won't brag that we were there, but they're awfully glad we were," FTI's president and chief executive officer, Jack Dunn, said of his clients in an interview yesterday.

Last year, the rapidly growing company - which announced its largest acquisition to date yesterday - worked for 97 of the top 100 U.S. law firms, nine of the country's 10 largest banks and 66 Fortune 100 clients, according to its annual report.

While forensic accounting and litigation support are only a piece of its overall business, FTI is growing rapidly as regulators are increasingly focused on how companies do business. Often, it is hired by company boards, creditors and shareholders to provide independent expertise on complicated matters such as litigation, restructuring, bankruptcies and regulatory issues.

Since 2000, the company has grown from about 300 employees to more than 1,330 around the world, mostly through about a dozen acquisitions.

Revenue climbed to more than half a billion dollars last year.

With trade growing globally, FTI is going overseas.

The company announced yesterday that it agreed to acquire London-based FD International Ltd., a financial public relations firm better known as Financial Dynamics, for $260 million. With a roster of more than 750 clients, including Heineken, Vodafone and Novartis, Financial Dynamics adds 450 employees at 17 offices in Europe, Asia, the Middle East, South Africa and the United States.

For 2006, Financial Dynamics is on track to reap $120 million in revenue. It is FTI's second consecutive acquisition of a firm headquartered outside of the United States. In July, it bought International Risk Limited, based in Hong Kong.

The single transaction puts FTI a year ahead in its five-year plan to become a $1 billion company by 2009, with 15 percent of its revenue coming from foreign-based clients, Dunn said. Last year, the company earned $56.4 million on revenue of $539.5 million.

However, the company's restructuring business in the United Kingdom has struggled - mostly because companies there are doing well, Dunn said. As a result of its own restructuring of related operations, FTI announced yesterday it would take a charge in the third quarter of $20 million, or 28 cents per diluted share. Excluding the charge, the company maintains its earnings guidance for 2006 of between $1.26 and $1.35 a share, which includes the impact of yesterday's purchase.

The two companies, which will be operated separately, admired each other in the past and recommended each other to clients, even though there was no agreement between them, said Declan Kelly, chief executive of Financial Dynamics' U.S. operations.

Kelly said the two are a good fit because they complement each other rather than compete. FTI helps executives confront challenges and make changes, while FD crafts the clients' corporate image, especially in a crisis.

"It's absolutely a match made in heaven," Kelly said in an interview yesterday.

Investors appeared to approve of the marriage as well, sending shares of FTI up nearly 5 percent to close at $23.09 a share.

FTI has about two dozen employees at its Baltimore headquarters on Pratt Street and a couple hundred more who carry out headquarters functions and other services in Annapolis.

The company started out as Forensic Technologies International almost 25 years ago in a small warehouse in Annapolis, with a group of engineers under age 40 developing computer models that helped courtroom staff and jury members understand the technical merits of cases. Co-founder Daniel Luczak majored in theater and engineering at Pennsylvania State University, Dunn said, which gave him a unique approach to business.

FTI's models and technology have been used in some of the most high-profile cases, including the O.J. Simpson trial. In 2000, the company was tasked with showing the difference between a hanging chad and a pregnant one in the Florida courts deciding whether George Bush or Al Gore won that state's votes in the presidential election.

The firm is currently handling 32 cases of options backdating, in which companies are accused of backdating the granting of executive stock options to a time when the stock price was low, to make the stock more valuable. In a recent report, analyst James Wilson of JMP Securities LLC in San Francisco wrote there could be hundreds of such cases, with fees approaching $1 million for each case.

While there is competition in this market, Wilson wrote, "FTI is well-positioned to benefit by providing data analysis and litigation support throughout the investigations and possible trials."

allison.connolly@baltsun.com

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.