When Huron Consulting acquired Wellspring Partners, a firm that helps health-care-industry companies manage crisis situations, for $65 million in January, it was banking on a tragedy. Or a series of them, to be more accurate.
Months after the acquisition, Gary Burge, Huron's C.F.O., remains sanguine: "We think that over the next 5 to 10 years, things are only going to get tougher in health care. There are all sorts of issues looming out there."
And those looming issues mean increased opportunities for Huron, which has annual revenue of $289 million.
Formed out of the ashes of the defunct accounting giant Arthur Andersen in 2002, Huron, which is based in Chicago, is one of the leading firms of its kind. It specializes in "turnaround management," with attorneys, accountants, investors, liquidators, and consultants who all assist other companies in distress.
That business has grown: the Turnaround Management Association in Chicago says its membership ranks have swelled to 7,683 at the end of last year from 5,674 in 2002.
Huron's formation was itself an exercise in turning adversity into advantage. On a Thursday night in March 2002, Andersen consultants Dan Broadhurst and Gary Holdren learned that their firm had been indicted by a federal grand jury on an obstruction of justice charge in connection with the collapse of Enron. By Sunday, the pair had lined up financing to launch Huron. Soon after, Broadhurst and Holdren hired 200 other former Andersen employees and began handling crisis assignments for United Airlines and Northwest Airlines, both of which were facing bankruptcy. Huron assisted with reporting requirements and financial analysis, among other things.
"We brought the Andersen folks over at their existing compensation; the partners took pay cuts on a cash compensation basis," Broadhurst says. "It was really a blast at the time. We had that feeling, that entrepreneurial spirit. Everybody pitched in, setting up file cabinets, running down to Kinko's to get the first proposals out. Those are times I will never forget."
The bread-and-butter services firms such as Huron provide are often relatively mundane: investigating allegations of stock-option malfeasance for corporate boards, helping clients meet Sarbanes-Oxley requirements on a tight deadline, or simply retrieving email records for companies in litigation.
And there seems to be no end of company crises in sight. Legal battles and that ever-present corporate scourge, bad management, keep firms like Huron busy. According to a recent survey of T.M.A. members, 21 percent predict a rise in debt-default rates for the last half of 2007, and another 65 percent expect a blowup in defaults by the end of 2008.
Crisis consultancies also feast on the meaty contracts stemming from recent trends in corporate America, such as the increase in private equity deals and regulatory scrutiny. Often, when a private equity firm buys out a distressed company, it brings in calamity consultants to clean it up for resale.
"There are so few good investments paying at high multiples nowadays," says Rebecca Baker, chief marketing officer for Alvarez & Marsal, a New York-based crisis firm. "One surefire way to make money is to buy a company and improve its operations."
Capable of providing teams of specialists at a moment's notice, turnaround professionals are prepared to clean up a client's mess-even if that means running a company's day-to-day operations or raising the private equity money to bail it out themselves.
Monterey County in California, for example, is currently paying Huron $5.1 million to transform Natividad Medical Center, a financially troubled public hospital, into a viable operation. A Huron-installed C.E.O. and C.F.O. have already cut losses by $17 million, in part by retraining the hospital's billing and collection staff.
And the need for crisis consulting continues to increase. More companies are finding themselves in trouble with regulators-or shareholders-than ever before. Between 2002 and 2004, financial restatements rose from 233 to 414, according to one Huron study. Another factor driving business is the post-Enron regulatory environment. The Sarbanes-Oxley Act effectively prohibits audit firms from providing many other consulting services to clients, including litigation support, valuation consulting, and due diligence.
"You can have many situations," says Huron's Burge. "There are lots of Eliot Spitzers out there, requiring more and better compliance and reporting out of corporations and other institutions. You can have a crisis situation, a company issue like an S.E.C. investigation that they want to get out from under fast and address concerns, or you could have a major piece of litigation."
Huron has benefited from all of this. Navistar International, a truckmaker, hired Huron last year after the S.E.C. began looking at the company's accounting and the N.Y.S.E. threatened to delist it for falling more than a year behind in filing its financial statements.
In one of its more publicized recent cases, Huron helped Warren Rudman, the former Republican senator from New Hampshire, untangle the genesis of the Fannie Mae accounting scandal. The mortgage giant was accused by regulators of providing misleading and incorrect financial statements. Huron used its forensic accounting skills to trace the origin of Fannie Mae's accounting failures in an effort to determine whether they were intentional. Fannie Mae eventually agreed to pay a $400 million penalty.
But perhaps Huron's greatest strength is something few other crisis-management firms have to offer: Many of its executives have been through a painful corporate meltdown of their own.
"I'll go to my grave feeling that what happened at Andersen was a great injustice," Broadhurst says. "It was a lot more political than we'll ever know. We were made a scapegoat, and there were 28,000 people who lost their livelihood.
"But," he continues, "though the Andersen thing was tragic and sad, we really feel blessed. Every day here is exciting. We started something new."
Visit Portfolio.com for the latest business news and opinion, executive profiles and careers. Portfolio.com© 2007 Condé Nast Inc. All rights reserved.