Independent Financial Advisory Firm Parlays Merger Into Growth Strategy

Thursday, December 1, 2005 - 00:00

The Editor interviews Noah Gottdiener, Chief Executive Officer, Duff & Phelps, LLC.

Editor: Please give us a summary of your background.

Gottdiener: My entire career has been in professional services, more specifically financial services. I started as an investment banker in 1982 at Lehman Brothers and moved up to become a managing director and ran my own group there. I spent about half my career at Lehman and was subsequently a partner at Thomas Weisel and Furman Selz. I took a more entrepreneurial direction a few years ago. In 2001, I started my own M&A boutique called Stone Ridge Partners. I used that vehicle as a platform to organize the acquisition of Duff & Phelps from Webster Financial Corporation, which was consummated in March of 2004. At that time Duff & Phelps had about 100 people in four offices and focused on investment banking and valuation services with a storied legacy dating back more than 70 years.

As the issue of independence became a focus for regulators and gained prominence in the public and political arenas, the demand for independent advisory services increased dramatically, and that became a springboard for Duff & Phelps to grow. Although most of our growth was internal, we made a small acquisition of a company called Valuemetrics last January. With that acquisition and our organic growth, Duff & Phelps grew to about 150 people and added a fifth office. At that point I started to think about how we could leverage this platform and really capitalize on some of the trends we were seeing. With the Duff & Phelps brand and the thirst on the part of the business community for independent advisory services, we looked for opportunities to create an even bigger company.

Editor: Please tell us about the new Duff & Phelps and the merger with Standard and Poor's Corporate Value Consulting.

Gottdiener: Our most recent acquisition was of a division of Standard & Poor's called Corporate Value Consulting. This transaction closed on September 30, 2005, and with the integration of the two firms, we have over 600 employees serving clients globally through offices in 15 cities in the United States and Europe, including one in Amsterdam and another in London. By bringing together two great organizations, we have created one of the leading independent financial advisory firms in the world - one that currently is the market leader in a number of important areas with the distinct goal of becoming the overall leader in the near future.

The combination of Corporate Value Consulting and Duff & Phelps positions us to be the dominant service provider to Chief Financial Officers and Chief Legal Officers. We are the market leader in performing valuations for financial reporting and tax purposes. Additionally, we have rapidly growing businesses in fixed asset and real estate consulting, dispute consulting and legal business solutions. Our other financial advisory services include M&A advisory, financial modeling, due diligence, fairness and solvency opinions and ESOP and ERISA advisory services.

The services of the two merged entities were very complementary, and we shared a commitment to building a business based on collaboration in order to maximize our long-term client relationships. Together, we now have the scale and market position necessary to accelerate our growth and provide the best talent, experience and service to our clients.

Editor: What do you see as the most pressing issue facing corporations today and how is Duff & Phelps positioned to address this issue?

Gottdiener: The greatest wave of change sweeping through corporate America revolves around corporate governance and increased regulatory scrutiny. One need only look at the headlines in the last five years, from Enron and WorldCom to Refco, to see the impact of corporate malfeasance. These scandals spawned increased regulatory and shareholder scrutiny and created a need for companies to monitor and manage risk and compliance. Risk management today is complicated by international regulations - rules that can be very different from or even conflict with U.S. regulations.

At the highest level, we help our clients anticipate and manage these risks before they become problems. Our growth strategy is predicated on listening to our clients and meeting their needs. Clearly, one of those needs is risk management and compliance with an evolving regulatory environment.

Editor: Your dispute consulting, forensic advisory and legal business solutions services are of particular interest to our readers. Please tell us more about them.

Gottdiener: Our dispute consulting and forensic advisory professionals assist attorneys at many of the country's most prestigious law firms in resolving disputes or potential disputes centering on accounting, valuation and other complex issues. We provide services through all phases of a dispute, from initial assessment and discovery to trial preparation and expert testimony, and we have handled cases involving literally tens of thousands of hours of financial and economic analysis. Our professionals are business and industry experts in areas such as bankruptcy, intellectual property, business insurance, shareholder disputes, M&A purchase price issues and commercial transactions. We also provide fraud and forensic services in connection with corporate internal investigations, and we have a growing practice in computer forensics and electronic discovery, which is a critical component of internal investigations as well as litigation, arbitration and other forms of ADR.

Our legal business solutions team offers management consulting principally to the Chief Legal Officer or General Counsel and Chief Compliance Officer. The team is focused on the front end of business risk - that is, prevention and mitigation - and consists of experts with decades of experience working with the law departments that have set the standards in risk mitigation and operations. Our professionals have deep backgrounds in strategy, organizational design, process, technology and financial analysis and understand the business of law and nuances across industries. Some of our recent client experiences include designing and implementing compliance infrastructure, combining law departments of companies engaged in a merger, centralizing law department operations, facilitating physical and electronic discovery responses, and implementing technology tools that enhance the effectiveness of the legal function. Legal business solutions complements our financial advisory services in that it addresses the prevention and mitigation side of business risk.

Editor: Now that Corporate Value Consulting has become part of Duff & Phelps, what are Duff & Phelps' key competencies? How does the firm distinguish itself from competitors?

Gottdiener: Our core competency is our focus on analytical rigor in everything we do. We approach every client situation with a single goal: to deliver objective advice of the highest quality and integrity. We have built our reputation on successfully supporting and defending our rigorous analyses and conclusions. The technical and industry expertise of our professionals, many of whom are considered luminaries in their field, sets us apart from our competitors. And since our culture fosters creativity and entrepreneurship, we will continue to attract and retain professionals with outstanding credentials. Our commitment to excellence can best be characterized by the recognition we receive from our clients, which include over 30% of the S&P 500. A significant number of those clients have given us repeat business because of the superior quality of our work.

We are the number one or two provider in many of the practice areas we offer. We are in an absolutely dominant position in financial reporting and tax valuation. Our fairness and solvency opinion business is among the largest in the world, and the merger has given us the momentum to gain the number one position. Our other practice areas have a similar scope and scale.

Editor: How important to your growth is the greater focus being placed on the audit function by the major accounting firms?

Gottdiener: We have all read about some of the travails of the big four accounting firms. Arthur Andersen is no longer with us. KPMG is frequently in the news. We are seeing a huge transformation in some of the services that are provided by the large accounting firms. When the big four venture out of their audit practice, they are running more and more into the independence conflicts, so their other businesses are becoming constrained. Consequently, there is a migration of top-quality professionals out of the non-audit practices of those firms, and we can be the ultimate beneficiary because we provide a great environment and culture for those professionals.

We are very proud of our reputation, our client relationships and the quality of our work. That is a primary focus of our firm and our professionals - and it is particularly important for businesses looking for independent advice in today's world.

Editor: Going forward, what is Duff & Phelps' growth and focus strategy - and where do you expect to be in five years?

Gottdiener: Our goal is to be the premier independent financial advisory firm with a global presence not only in Europe but also in Asia, including Japan and China. We are seeing near-term opportunities to open offices in those locations - and you will see us taking advantage of those opportunities very soon. We believe that we can leverage our strong positions in many of our businesses to build complementary businesses that make sense for us. These include, among others, transfer pricing, anti-money laundering and forensic investigations. We will also expand our compliance and electronic discovery services and provide more depth for our existing bases in litigation management and forensic advisory services. In general, we plan to broaden our service offerings to address projected trends that affect our core businesses and respond to client needs.

Five years from now, we expect to be a global full-service firm with the number one position in all of our current business services. We expect to be viewed by law firms and corporate law departments worldwide as the gold standard and the number one referral source for their clients for financial advisory and risk mitigation services, as well as the partner of choice for the big four accounting firms.

Editor: Is there anything you would like to add?

Gottdiener: What makes us different is our collaborative culture that emphasizes quality. This enables us to attract the best people wherever we may be around the globe. At the end of the day, that is what is really driving our business and making us a valuable advisor to our clients.

Please email the interviewee at noah.gottdiener@duffandphelps.com with questions about this interview.