FTI, Grant Thornton acquire LECG practice groups

LECG quietly announced today that it had reached a tentative agreement with FTI Consulting and Grant Thornton over the sale of five LECG practice groups. A press release from LECG, a public company strapped with nearly $30 million in outstanding credit debt, broke the news. Under the agreement, two "expert practice groups"—international arbitration and aviation competition—will make the move to FTI, while two others—tax and business consulting—will join Grant Thornton. A third firm, accounting/consulting shop WeiserMazars, is in contention along with Grant Thornton for the services of a fifth LECG segment, LECG Partners.

The decision to sell off as many as five key practice groups is a painful but necessary one for LECG, which last week admitted that it was on the brink of insolvency as a result of insurmountable credit debt. Exhibit A: "Absent sufficient proceeds from the transition of practice groups, the company will not have adequate cash resources to repay amounts outstanding under the facility." When the company refers to "amounts outstanding under the facility", it means the $27.8 million it has owed for since it borrowed $35 million midway through 2010. While LECG isn't releasing the financial details of the practice group transaction, it does suggest that the funds derived from it will be enough to cover the debt once and for all—though it will leave little or nothing to spare to fund a rebuilding effort at LECG. Exhibit B: "The Company does not believe there will be any value remaining for the common stockholders after taking into account the expected net sale values of these transactions in the aggregate, and the use of the proceeds to fund payments to the Company's lenders and unsecured creditors."

So while it is finally seeing a welcome end to this long, drawn-out debt saga, LECG finds itself severely weakened by the loss of five major practice units. The new Grant Thornton divisions will likely be missed most; while the meat-and-potatoes tax and business consulting groups should reinvigorate Grant Thornton's modest consulting portfolio (the company sold most of its consulting operation to Hitachi in 2000), their loss leaves LECG without a solid base to rebuild and redevelop new niches like those sold to FTI. On a personal level, it means that approximately 350 LECG employees (out of only 1200 worldwide) in places like Atlanta, Chicago, New York, and Washington, DC will leave the company effective immediately.

Perhaps most difficult for LECG consultants to digest will be the further uncertainty generated by a warning at the end of the press release. "The company continues to negotiate the possible transition of the majority of its remaining practice groups, with the advice of its restructuring advisors," it reads. Regardless of whether or not the firm manages to keep hold of the rest of its practice groups, the damage has been done, at least to LECG's pride; for a consulting firm, is there anything worse than having to bring in "restructuring advisors" to turn the company around?

For more information:
Press Release: LECG Announces the Transition of Practice Groups to Other Firms