Huron Consulting Group Inc.

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Huron Consulting Group Inc.

ACQUISITIONS: 2005–07

ORIGINS

The spectacular, highly publicized collapse of Enron Corporation between 2001 and 2002 had a profound effect on the formation of Huron and the business environment in which the consultancy firm operated. The scandal, a maelstrom of corruption, fraud, and unscrupulous accounting practices, turned an energy-trading company with claimed revenues of $111 billion into a corporate junkyard within a matter of months, making for one of the most notorious cases of managerial malfeasance in modern business history. Investors, employees, and California consumers and businesses, saddled with inflated electricity prices, were among the many victims of Enron’s torrid plummet, as was the credibility of U.S. business culture, which was undermined by the “squirrelly behavior of six- and seven-figure accountants, lawyers, CEOs, bankers, and financial analysts who failed at their duty with Enron,” as Business Week noted in its January 28, 2002, issue. The failure of those with influence cast a pall over the corporate landscape, begging for stricter controls and stricter enforcement by federal authorities. In terms of litigation avoidance and compliance, everything changed in the corporate world after the fall of Enron—creating a fertile environment for enterprising lawyers and consultants—for the type of company Huron would become.

To ensure that the sweeping devastation caused by the Enron scandal would not be repeated, the U.S. Congress intervened. Chief among the pieces of legislation enacted in the wake of Enron’s collapse (and the other spectacular corporate disaster of the time, World-Com) was the Sarbanes-Oxley Act, a law created to protect shareholders and the public from accounting errors and fraudulent practices in the corporate setting by stipulating the type and duration of record storage. Federal officials also imposed other corporate regulations, the Securities and Exchange Commission stepped up enforcement actions, and laws were passed restricting auditors from performing consulting work, all of which created market opportunities for Huron. The firm’s indebtedness to the collapse of Enron ran deeper, however. The scandal put a group of financial and operational consultants out of work and forced them to start over, a reiteration of professional lives that was manifested as Huron. The first courtroom casualty of the investigation into Enron was Arthur Andersen LLP, one of the “Big Five” accounting firms that performed auditing, tax, and consulting services for the world’s largest corporations. In June 2002, Arthur Andersen LLP was found guilty of obstruction of justice, but before a Houston, Texas, jury delivered its verdict, the company had begun to unravel. Its staff of professionals had begun to flee, including a group of financial and operational consultants led by Gary Holdren, a partner and Midwest director of global client services of Arthur Andersen LLP.

The Holdren-led group founded Huron in March 2002, establishing the firm in Chicago, the same headquarters of its former employer, Arthur Andersen LLP. For start-up capital, the fledgling firm relied on Lake Capital Management LLC, a company armed with a $500 million investment fund that picked Huron as its first investment recipient. Lake Capital provided a $100 million investment to the 213 financial and operational consultants composing Huron when the firm commenced operations in May 2002. Holdren, who took the titles of chairman, chief executive officer, and president, set up Huron as a consulting business unaffiliated with a public accounting firm, giving the firm greater flexibility in the post-Enron marketplace. Because Huron was established as an independent consulting firm, the company was not subject to the legal restrictions placed on public accounting firms, namely, restrictions that prohibited public accounting firms from providing certain nonaudit services to their audit clients. Holdren, instead, marshaled his forces to focus on two areas of business, financial consulting and operational consulting, the two segments that composed Huron.

Huron’s two business segments provided a wide range of services, services tailored to serve both financially sound and financially distressed corporate clientele. On the financial side, the firm offered analyses and advice to resolve challenges stemming from litigation, disputes, investigations, regulation, and financial distress. Within the financial consulting segment, the disputes and investigations subcategory offered financial analyses to aid law firms and corporations ensnarled in disputes, lawsuits, and regulatory or internal investigations, including forensic accounting expertise to reconstruct complex corporate transactions and events.

Economic consulting, another subcategory of the financial segment, included economic and statistical analyses to support litigation, regulatory hearings, and public policy issues. A third subcategory, corporate advisory services, provided assistance to financially floundering companies, partnering Huron consultants with the management of the distressed client to assess the viability of the business and to develop and to implement a turnaround plan. Within the valuation services subcategory, Huron’s financial consulting segment also offered valuation services that determined the value of assets in connection with acquisitions and bankruptcies. The final subcategory, the firm’s interim management/focused consulting practice, specialized in distressed healthcare companies, providing onsite senior management, suggesting revenue-cycle improvements, and developing cost-reduction initiatives.

COMPANY PERSPECTIVES

In today’s competitive environment, consulting companies must never lose sight of the fact that consulting is a relationship business and must resist the temptation to market their services as products. The work itself becomes routine and unrewarding, and ultimately less valuable for the client. Clients will begin to view the consultant as simply one vendor among many, and base their purchasing decisions solely on price. When this happens, profit margins will decrease and attrition rates will climb. The answer is to focus on value, which is demonstrated by results that meet the client’s overall objectives. These results can only be achieved through the implementation of specialized services delivered by teams of talented consultants who understand the needs and wants of their clients.

While Huron’s financial consultants ministered to the stricken, its operational consultants engaged in more cheerful meetings with their clients. The segment provided services to help clients improve the efficiency of their business by increasing revenue, reducing costs, and managing regulatory compliance issues. Like the financial segment, the operational segment comprised several subcategories, beginning with the firm’s higher education practice, which served colleges, universities, hospitals, and academic medical centers by helping such organizations tackle issues related to research administration, regulatory compliance, clinical research, technology planning, and financial management and strategy.

The legal business consulting practice worked in concert with clients’ in-house legal departments to improve their organizational design and business processes and with management to assist in the use of outside counsel. Within the legal business consulting practice, a wide range of digital evidence, discovery, and records management services were offered, including computer forensics, data management, document processing, and numerous other services.

A third subcategory focused exclusively on healthcare businesses, providing services to both providers and payers. For providers, the healthcare practice helped hospitals, physicians, and other healthcare organizations improve their operations by performing assessments and implementing solutions addressing cost reduction and efficiency. For payers, the firm focused on compliance and government contracting issues related to federal healthcare programs such as Medicare.

Another subcategory dealt with strategic sourcing, a practice devoted to helping clients navigate through all areas of the procurement process. Strategic sourcing consultants addressed the needs of clients’ chief financial officers and chief procurement officers, offering services related to accounts payable and invoice audits, outsourcing advice, contract compliance, and spend analysis, among other services. The final subcategory in the operational segment, performance improvement, comprised consultants who helped clients align their business models, improve efficiency, and realize optimal value from strategic transactions such as mergers and spinoffs.

HURON’S FIRST MONTHS IN BUSINESS

With its own business strategically aligned, Huron set out to win the confidence and the business of the corporate community. The firm generated $1.5 million in its first month of operation, drawing its business from the relationships its billable professionals had cultivated with individuals working in corporations, academic institutions, and leading law firms. Personal contacts, from the start and during the ensuing years, served as Huron’s principal means of developing new business, making the addition of new consultants akin to developing new products: as more consultants joined the firm, revenues, theoretically, would increase. Consequently, increases in the firm’s payroll, particularly in the number of billable professionals, provided a meaningful yardstick of Huron’s expansion, with each new consultant hired bringing his or her own network of business relationships that increased the firm’s financial stature. By the end of 2003, Huron’s first full year of operation, considerable growth had been achieved in this area. The firm’s workforce doubled, lifting revenues above the $100 million mark, helping make Holdren one of the most influential consultants of 2003, as selected by Consulting Magazine.

KEY DATES

2002:: Huron is founded in March and commences operations in May.
2003:: Huron launches its healthcare practice.
2004:: The firm completes its initial public offering of stock.
2005:: An acquisition spree begins with the purchase of Speltz & Weiss LLC.
2006:: MSGalt & Company, Aaxis Technologies Inc., and Document Review Consulting Services LLC are acquired.
2007:: Huron completes the acquisition of Wellspring Partners LTD and Glass & Associates, Inc., in January.

During Huron’s first months in operation, the firm relied heavily on the financial side of its business. Turnaround work, such as navigating United Airlines’ parent, UAL Corp., through bankruptcy proceedings, fueled the firm’s growth. The business derived from turnaround contracts put Huron on its feet, but the need for such consulting work began to diminish by the end of 2003. The firm responded by emphasizing its operational consulting services, namely advising healthcare companies on how to be more efficient and expand into new markets. Huron’s efforts in accentuating its healthcare business were bolstered significantly by the arrival of four senior consultants from Cap Gemini Ernst & Young’s healthcare practice to the firm’s Chicago headquarters in the fall of 2003. As a result, Huron’s operational consulting revenues leaped 160 percent between 2003 and 2004, balancing the company’s financial footing as it prepared to complete an initial public offering (IPO) of its stock. The firm completed its IPO in October 2004, becoming a publicly traded company two months before it announced revenues had eclipsed $150 million. With more than 600 employees, including billable professionals and administrative staff, Huron had achieved impressive growth during its first two years in business, but the pace of the firm’s expansion was about to pick up after the IPO as the Chicago consulting firm turned to the quickest mode of expansion: completing acquisitions.

ACQUISITIONS: 2005–07

Huron added revenue-generating consultants in bunches following its IPO, fleshing out the financial and operational segments of its business by purchasing rivals. The firm’s acquisition campaign touched off in May 2005 with the purchase of Speltz & Weis LLC, a consulting firm founded in 2001 by David Speltz and Timothy Weis, who created the firm to lead Syracuse, New York’s Crouse Hospital out of bankruptcy. The $17 million transaction added 30 consultants to Huron’s ranks, strengthening the firm’s interim and crisis-management practice that served the healthcare industry. The deal gave Huron a full menu of service offerings to distressed hospitals and other healthcare facilities, a potentially lucrative market in Holdren’s eyes. “I think most of us will agree the healthcare system in the United States has major challenges,” he said in a May 16, 2005 interview with Crain’s Chicago Business, shortly after the Speltz & Weis deal closed. “The consulting dollars spent in the country are in the billions. The changes over the next several years in the healthcare sector will create great opportunities for Huron.”

Revenues slipped past $200 million in 2005, more than double the total generated two years earlier, as Huron’s expansion efforts elevated its stature within the consulting industry. The firm’s acquisitive activity resumed after nearly a yearlong hiatus, with the operational side of its business benefiting from the absorption of a rival. In April 2006, Huron purchased MSGalt & Company, an advisory firm that developed and implemented programs to improve shareholder returns. Next, Huron completed two acquisitions in one month, adding consultants from Document Review Consulting Services LLC and Aaxis Technologies Inc. in July 2006. Document Review, as its name indicated, provided comprehensive document-review services provided by experienced contract reviewers. Aaxis, which strengthened Huron’s legal business consulting practice, offered electronic data discovery support to litigation teams and corporate counsel.

By the end of 2006, a look at the yardstick that measured Huron’s expansion showed considerable progress. The number of revenue-generating professionals employed by the firm had nearly quadrupled, jumping from the 213 consultants employed at the firm’s inception to 842 operational and financial advisers four years later. The expertise of the professionals added to the firm’s payroll produced a balanced consulting practice, with the 344 billable professionals working in the financial consulting segment generating 48 percent of Huron’s revenue in 2006 and the 498 billable professionals grouped in the operational side generating 52 percent of the firm’s revenue. As Huron headed toward its fifth anniversary, plotting its course for the future, the firm was expected to continue expanding through acquisitions.

Activity in early 2007 suggested as much, marking the completion of the firm’s largest transaction in its history. Huron acquired Glass & Associates, Inc., a turnaround and restructuring consulting firm, in January, but the deal was overshadowed by the $65 million acquisition of Wellspring Partners LTD during the month. The purchase of Wellspring, which added 65 consultants and $55 million in revenue, expanded Huron’s healthcare practice fourfold, broadening its service offerings and extending its geographic reach. In the years ahead, further acquisitions on the scale of the Wellspring deal promised to make Huron a formidable force in the consulting industry, as the Holdren-led organization entrenched itself in the marketplace by helping clients overcome disaster and seize opportunities.

Jeffrey L. Covell

PRINCIPAL SUBSIDIARIES

Huron Consulting Group Holdings LLC; Huron (UK) Limited; Huron Consulting Services LLC; Wellspring Management Services LLC; Aaxis Technologies, Inc.; FAB Advisory Services, LLC.