Entity to Retain Alternative Practice Structure with CPAFirm
Emeryville, Calif.-Accounting and financial services provider LECG's planned merger with Smart Business Advisory and Consulting will create a formidable consulting entity with 1,300 employees and annual revenues approaching $500 million.
The deal, announced last month, is valued at $25 million in cash and $39.9 million in stock, and will fold Devon, Pa.-based Smart into LECG, which will continue operating as a publicly traded company.
Once the merger is completed, Smart chief executive Steve Samek, 56, will become CEO of the combined company and a member of the board, replacing Michael Jeffery, who announced back in July that he would be stepping down as LECG's CEO.
Samek has a 35-year background in consulting, business advisory services and accounting, and was a managing partner at Arthur Andersen. More recently, he served as chief executive at CPA firm consolidator UHY Advisors.
In 2009, Smart ranked No. 23 on Accounting Today's Top 100 Firms roster with revenues of $116 million - that includes its financial advisory and consulting practices, as well as fees from traditional audit and attest services from its licensed CPA arm, Smart & Associates, which operates with Smart Business Advisory and Consulting in an alternative practice structure.
"While Smart Business Advisory and Consulting ismoving forward in its merger with LECG, Smartwill maintain its alternative practice structure, doingbusiness as Smart & Associates for the audit & attest practice,"explained Samek.
Smart specializes in technology, tax and accounting, while LECG brings expertise in economics, forensic accounting and bankruptcy/turnarounds. Smart's client niches are primarily in the banking, insurance, real estate, health care, education and public sectors.
"This is huge for both firms in that it rounds out their platform and makes them a true integrated services platform in their niches," said Allan Koltin, CEO of the Chicago consultancy PDI Global. "This is very similar to what we saw the Big Eight do many years ago when they merged firms and ultimately became the Big Five."
As part of the merger deal, LECG will receive a $25 million cash investment from Smart's majority shareholder, Great Hill Partners, and LECG will issue approximately 10.9 million shares of common stock having a value of $39.9 million to acquire all of Smart's outstanding shares. LECG will also issue approximately 6.3 million shares of preferred stock at $3.96 per share in exchange for a $25 million cash investment in the combined company.
The deal is expected to close in the fourth quarter. When it's completed, Great Hill Partners will own approximately 40 percent of the outstanding voting power of the new company, which will retain the name LECG. However, the new headquarters location for the combined company had, at press time, not been determined.
Smart has 300-plus employees in the Philadelphia area, with offices in Devon and Center City. California-based LECG has more than 1,000 employees, and offices in Philadelphia and Wayne, Pa.
Two years ago, Boston-based Great Hill plied Smart Business Advisory and Consulting with a cash infusion of $60 million, giving it a controlling interest in the firm. Less than a year later, Great Hill asked company founder Jim Smart to step down as chief executive; he was succeeded by Samek in that post. Smart had intended to remain with the firm as chairman of the board, but exited the company several months later.
Smart founded the company in 1988 as a solo practice and had grown it to a concern generating revenues of more than $100 million. Along the way, Smart veered its focus toward consulting services, and subsequently purchased advisory practices from Arthur Andersen, Deloitte and KPMG, and actuarial services from insurance carrier Aon.
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