Incorporated: 1988 as The Law and Economics Consulting Group, Inc.
NAIC: 541110 Offices of Lawyers; 541211 Offices of Certified Public Accountants; 541611 Administrative Management and General Management Consulting Services; 541618 Other Management Consulting Services
SIC: 8111 Legal Services; 8721 Accounting, Auditing & Bookkeeping; 8742 Management Consulting Services; 8748 Business Consulting Services Nec
LECG Corporation is a leading economic consulting firm, offering expert witnesses and analytical services in a variety of fields. LECG is known for a decentralized, entrepreneurial culture that amply rewards its consultants, most of whom hold Ph.D.s. Formed by professors from the University of California at Berkeley, it has been based in Emeryville, California, since its founding in 1988. LECG has three dozen offices in ten countries.
Berkeley Origins
The original incarnation of LECG was formed in 1988 as an S corporation by professors at the University of California at Berkeley. Based in Emeryville, California, the firm was known as The Law and Economics Consulting Group, Inc. It would be renamed LECG, Inc., in October 1997, a couple of months before its initial public offering (IPO).
Founders included economics professor David Teece and Tom Jorde, a professor of law. Teece became chairman. A native of New Zealand, Teece had immigrated to the United States after earning a master of commerce degree from Canterbury University. According to a 2007 profile of Teece in the Wall Street Journal, he began his consulting career early, helping Exxon Corp. defend against price-fixing allegations while studying for his Ph.D. at the University of Pennsylvania. After graduating, he joined the faculty of the University of California at Berkeley, where he received tenure at the age of 33.
Teece remained involved with the business community in New Zealand. He bought a house there and in 1999 his CHL New Zealand investment group acquired LWR Industries, which made the country's Canterbury brand of clothing.
According to the Wall Street Journal story, the concept of free market justice thrived during the Reagan era. By the time the original LECG was launched in 1988, an entire industry had sprung up around the expert witness business. In a kind of arms race, prosecutors and defense vied for parity by obtaining the most credible economic analyses. Teece boasted experience testifying in some of the biggest precedent-setting cases of the day.
LECG's economic analysis proved applicable to many different industries, keeping the firm in demand and allowing the senior partners to supplement their professors' salaries with six-figure incomes. As one of the leading witnesses, Teece himself could rake in more than a half-million dollars in a year. In a structure similar to the law profession, new Ph.D.s handled some of the grub work and were billed at lower rates.
LECG's revenues reached $20 million in 1993, resulting in net income of $3 million. By 1995 revenues were up to about $25 million; they were still growing at a double-digit rate.
First Initial Public Offering
Though LECG did not invent the business model of professor-turned-consultant, it was one of the first of the "research boutiques" to go public. LECG, Inc., floated its shares on the New York Stock Exchange in December 1997 (ticker symbol "XPT").
The company was soon acquired by Navigant Consulting, Inc. (then called The Metzler Group, Inc.), another publicly traded consulting firm, in a deal worth $214 million. LECG continued to operate independently for a time as a wholly owned subsidiary. However, Navigant had felt the need to scale back after a multiyear buying spree, allowing for the spinoff of the unit in a couple of years.
Meanwhile, there was significant international expansion in the late 1990s. LECG opened offices in New Zealand, Belgium, and the United Kingdom in 1997. At the time of the Metzler buy, LECG had ten U.S. and four international offices. It employed 160 people. Revenues rose more than 40 percent for the year to $44 million. It expanded its Argentina operations in 1998 with the purchase of Cordoba-based Expectativa--Economic Consulting, a specialist in regulatory issues for utilities.
Spin Off from Navigant
The company averaged 25 percent growth throughout most of the 1990s, reaching revenues of $74 million in 2000. There were then 96 experts and 168 professional staffers on board. In September 2000 LECG Corporation was spun off from Navigant in a $43 million management buyout. Thirty-five consultants participated, with backing from Chicago's Thoma Cressey Equity Partners. David Teece returned to his former role of chairman. Revenues exceeded $100 million in 2001 and rose by a third the next year. However, the company was beginning to post losses.
LECG was among the many firms to pick over the assets and staff of accounting giant Arthur Andersen after its sensational collapse in 2002. It paid about $3 million to add 35 of Andersen's insurance-related employees (including ten consultants).
Public Again
LECG went public again in November 2003, this time on the NASDAQ (under the ticker symbol "XPRT"). The successful initial offering raised $127.5 million. By this time, LECG had nearly two dozen offices located in seven countries.
The company returned to profitability with a $19 million operating profit in 2003 as revenues reached $166 million. Some observers grumbled that the surplus would have been greater if the experts were not so amply compensated, but generosity was part of the company's formula for loyalty in a field keenly competitive for talent. The company's top two consultants, Teece and David Kaplan, were drawing in the neighborhood of $2 million a year, information the East Bay Business Times gleaned from a company's proxy statement.
Acquisitions After 2003
With fresh capital in hand from the IPO, the company then went on a buying spree, acquiring about a dozen companies in the next few years. In March 2004 it acquired Los Angeles-based Economic Analysis LLC for $16 million. This added 50 employees. The purchase of Toronto's Low Rosen Taylor Soriano occurred about the same time.
The company bought Silicon Valley Expert Witness Group, Inc., in August 2004. The deal was worth about $9 million. Washington Advisory Group, LLC, was acquired in October 2004. Revenues were $217 million in 2004, producing operating income of $28.9 million.
By 2005 revenues were up to $287 million and the company was reporting operating profits of $37.5 million. The buying had continued with the December 2005 acquisition of Beach & Company International LP for $500,000. In the same month, Lancaster Consulting LLC was purchased for $1.5 million.
LECG added California's BMB Mack Barclay, Inc., in May 2006. The price was about $13 million plus a potential $8.8 million in performance incentives. LECG retained the staff of the acquired company, though, as was the case with most of its acquisitions, it restyled the unit under its own brand. LECG ended 2006 with rapidly rising revenues of $353.9 million and a growing workforce of about 1,200 employees.
Continuing the acquisitions, LECG picked up The Secura Group LLC in 2007. Secura had been formed in 1986 by former Federal Deposit Insurance Corporation Chairman Bill Isaac and specialized in advising financial institutions. It had a staff of ten professionals based in Vienna, Virginia, and a Los Angeles branch office.
Principal Subsidiaries
LECG, LLC; LECG Limited New Zealand; LECG Limited UK; LECG Canada Holding, Inc.; LECG Canada Ltd.; LECG Holding Company (UK) Ltd.; LECG Consulting France, SAS; LECG Consulting Spain, SL; LECG Consulting Belgium, NC; LECG Consulting Italy, SrL; Silicon Valley Expert Witness Group, Inc.
Principal Divisions
Antitrust & Competition; Bankruptcy; Claims Services; Electronic Discovery; Energy; Entertainment, Sports & Media; Environment & Insurance Claims; Finance & Damages; Financial Services; Forensic Accounting; Healthcare; Intellectual Property; International Arbitration; Labor & Employment; Life Sciences; Mergers & Acquisitions; Petroleum & Chemicals; Property Insurance Claims; Public Policy; Securities; Stock Options Backdating; Strategy & Performance Improvement; Telecommunications; Transfer Pricing; Transportation.
Principal Competitors
CRA International Inc.; Huron Consulting Group Inc.; FTI Consulting, Inc.; Navigant Consulting, Inc.; National Economic Research Associates, Inc.
Further Reading
Adler, Neil, "Secura Agrees to Sell to Calif. Advisory Firm," Washington Business Journal, March 15, 2007.
Anders, George, "An Economist's Courtroom Bonanza; Whether It's Motley Crue or Antitrust Law, Berkeley's David Teece Is Ready to Testify," Wall Street Journal Online, Page One Sec., March 19, 2007.
Bergh, Roeland Van den, "LWR Bidder an Academic Heavyweight," Dominion (New Zealand), June 10, 1999, p. 17.
"BIL Ready to Take Low Bid for LWR," Christchurch Press, June 9, 1999, p. 30.
Cole, Jim, "Emeryville's LECG Files for IPO," East Bay Business Times, August 25, 2003.
------, "LECG's IPO Riches," East Bay Business Times, June 25, 2004.
Fanelli, Christa, "Thoma Cressey Breaks Off LECG," Buyouts, November 6, 2000.
Gallagher, Dan, "LECG Jumps 23 Percent in IPO," East Bay Business Times, November 14, 2003.
Kraeuter, Chris, "Gaming the System," Forbes.com, May 31, 2006.
"LECG Buys Competitor for $4M," San Francisco Business Times, October 12, 2005.
"LECG Buys Firm for $13.2m," East Bay Business Times, May 8, 2006.
"LECG Corp.--XPRT: Complete Acq. of Economic Analysis LLC for $16.3 Million," Knobias, April 1, 2004.
"LECG Inc.," Going Public: The IPO Reporter, December 8, 1997.
"LECG Inc. Short Term Buy," Emerging & Special Situations, December 15, 1997, p. 19.
Marshall, Jonathan, "Group of UC Economists Hope to Cash in on IPO," San Francisco Chronicle, October 30, 1997, p. C1.
------, "Signing Up Laura Tyson; LECG Latest to Enlist Former Clinton Chief Economic Adviser," San Francisco Chronicle, April 26, 1997, p. D1.
McMorris, Frances A., "New Set of Companies Test IPOs This Week," Daily Deal, IPO Sec., November 11, 2003.
McMorris, Frances A., and David Carey, "Ashford Prices; LECG, Sirva File for Offerings," Daily Deal, IPO Sec., August 26, 2003.
"Metzler Group Closes Acquisition of LECG Inc.," Dow Jones News Service, August 20, 1998.
"Metzler to Buy LECG for $214 Mln," Reuters News, July 1, 1998.
Moreira, Peter, and Frances A. McMorris, "LECG Jumps in Debut," Daily Deal, IPO Sec., November 17, 2003.
Pfeffer, Jeffrey, "How to Hold on to Star Talent; Law Firms and Other Professional Services Outfits Are Often Victims of the Talent Drain. The Solution? Generosity," Business 2.0, July 12, 2006.
Rosenberg, Alec, "LECG's IPO Raises $127.5 Million," Oakland (Calif.) Tribune, November 15, 2003.
— Frederick C. Ingram
