Hill International, the Philadelphia-based project-management company that represents the Pennsylvania Turnpike and other clients around the world when they hire building contractors, says it has agreed to sell its Construction Claims Group, with 960 staff and offices in 40 countries, to UK-based private-equity investor Bridgepoint Development Capital, for $147 million cash.
NEW 11:30 AM: Hill will make "significant cuts" to its "corporate overhead structure," to leave costs "as lean as possible" after the sale, which it hopes to close by February, CEO David Richter told investors in a conference call.
Hill, with around 4,400 staff worldwide, employs around 180 at its Center City headquarters, plus 70 elsewhere in the region. Claims unit bosses "will be moving out and getting their own space" in the Philadelphia area once Bridgepoint takes over; fewer management support workers will be needed to run the smaller, less-complex remaining company, Richter said. Hill will say more about the number of job cuts and separations after the board meets in January.
Hill shares, which have traded mostly in the $3 to $6 range since 2008, rose as much as 18 percent, to as high as $4.28, in early trading on the news, settling around $4.10 (up 12 percent) after the conference call. Richter called that boost "underwhelming," noting the sale price was equal to almost 80 percent of the company's share value, for a business that accounted for only about a quarter of Hill.
Hill expects to collect the $147 million sale price tax-free, since it has enough past losses to offset profits from the deal. Richter said Hill will use the cash to pay down and refinance its debt, which had left the country "overextended." That will reduce payments to bankers and other debt investors, who last year charged rates topping 9 percent, costing Hill $13.5 million.
Richter also said his slimmed-down company will concentrate more on U.S. operations, and on acquiring other project-management firms, particularly in the U.S. With business slowing in the Middle East and Latin America, the CEO expects to boost the proportion of domestic sales to over 40%, from today's 30%.
Bridgepoint will run the claims group "on a stand-alone basis," Hill spokesman John Paolin told me. Group president Frederic Z. Samelian and senior vice presidents Frank J. Giunta and Renny Borhan will remain in charge as of the deal closing date, which is scheduled for February. Richter said the group "welcomed" the sale.
Bridgepoint partner Alan Payne said his firm, which manages $15 billion in mostly European investments, plans to "improve" claims operations, buy other firms, and add new services.
The Construction Claims business provides expert testimony in court cases, arbitrations and other disputes over construction problems. Over the year ending Sept. 30, Hill says the claims group collected $163 million, about 26% of Hill's total sales, and collected $11 million in profits, on an operating basis.
Construction Claims "was the original business" that longtime CEO Irvin Richter used to build the company since the 1970s, David Richter, Irvin's son, noted.
"We will miss our friends and colleagues in that business, but we know that each of us will be in a better position," Richter added, "as independent and separate companies," who should find it easier to win new business and raise capital.
By selling off the claims business, Richter says Hill will eliminate "conflicts of interest" that used to keep clients from hiring the company as both a construction project manager and an arbiter or expert witness in case of construction disputes.
The claims business is "a global leader" that "is highly regarded by its clients," added Bridgepoint partner Payne. Bridgepoint investments include the Hallmark Hotels chain, Oasis Medical and Western Wine Group. See a list here.
Richter said he'd been looking for ways to raise cash since taking over as CEO two and a half years ago. He said Hill hired KeyBanc as an advisor to sell the claims business back in January; the deal took longer than expected to close. Philadelphia law firm Duane Morris also advised Hill on the sale.