Hill International (OTC Pink: HILI) is an American construction consulting firm. Founded in 1976, the company corporate headquarters are in Philadelphia, Pennsylvania, United States since April 2015.
In 2017, Engineering News-Record magazine ranked Hill as the 8th largest construction management firm-for-fee and the 7th largest program management firm in the U.S. Hill's claims and consulting services (now "Discontinued Operations"), which include claims analysis, litigation support, expert witness testimony, cost and damages assessment, delay and disruption analysis, lender/technical advisory and the Project Neutral, accounted for $169 million in revenue in 2016 of the total of $689 million for the company.
Video Hill International
Global structure
Hill International (not including its "Discontinued Operations") has offices in six primary regions of the world, including:
- U.S.
- Latin America
- Europe
- Middle East
- North Africa
- Asia/Asia Pacific
Maps Hill International
History
Beginnings
Hill was founded in 1976 by Irvin E. Richter and Michael W. C. Emerson, P.E. Richter soon bought out Emerson, and named himself the "Vice-President" despite being the only employee other than his executive assistant. The VP title and the "International" in the corporate name were intended to make the company appear to be a large professional entity. The first offices were in Richter's home in Willingboro, NJ. The name "Hill" was to designate the preferred location of the company office (Cherry Hill, NJ). However that move never took place. A short time later the office moved to the Levitt Building in Willingboro where it stayed until 2002. Richter had worked in Construction Claims Consulting at Wagner, Hohns, Inglis Inc., Mount Holly, NJ from 1974 to 1976 before he started his firm providing similar services.
Richter immediately began a series of important acquisitions to bring the necessary professional expertise to Hill. One of the key moves was to bring Construction Management Services, Inc. (CMS), (a Critical Path Method (CPM) scheduling company) into the fold. CMS was formed by A. James Waldon, Dwight Zink and William De Vos. Several of the principals at CMS as well as an employee, Joseph J. Ranieri, had worked at Mauchly Assoc., a consulting company as Senior Vice President, a company which was founded by Dr. John W. Mauchly, co-inventor of the computer. Zink and Ranieri, were two of the early practitioners of CPM, an early application of computers to construction and procurement scheduling. They helped establish CMS, a CPM consulting firm, that worked extensively in scheduling construction projects and forensic scheduling analysis, and both worked at Hill after the acquisition.
Hill prospered in the 1970s because of the explosion of local construction projects funded by the newly established United States Environmental Protection Agency (EPA). The EPA required the use of the Federal Acquisition Regulation and claims (as "Requests for Equitable Adjustments") became the new norm for local procurement. Hill had about 20 full time employees by the end of 1979. In 1980 Hill opened its first branch office in Washington, D.C., and began to service the US Federal government and government Contractors from there.
By the 1980s another series of events in the construction industry fueled a further increase in construction claims and the growth of Hill - the nuclear power plant. The construction of these plants was highly regulated and had resulted in huge overruns in cost and schedule for almost every plant built. Over 46 plants had been commissioned in the 1980s alone. At this time the Nuclear Power Generating Industry was at the end of a very rapid increase in constructing plants and began to terminate many projects which had already begun due in large part to nuclear accidents at Three Mile Island and Chernobyl. This brought another explosion in construction claims for schedule and cost overruns as well as termination claims, including utilities, engineers, nuclear reactor manufacturers as well as contractors and subcontractors. At this time Hill International brought in William J. Doyle to oversee the growth in nuclear related claims. Doyle had through a series of acquisitions and hard work, built a small mechanical contracting company into one of the largest mechanical contractors in the nation, General Energy Resources, Inc., whose core business was subcontracting at nuclear power plant projects. Doyle then served as Senior VP of Northrop Corporation before he became an executive of Hill International overseeing much of the nuclear claims work as well as other multi-million dollar projects.
Doyle oversaw in the 1980s and 1990s the beginnings of the expansion from a claims consulting firm into a project management company. Hill's initial ventures into Project Management was through a concept called "Troubled Project Turnaround". In 1981, Hill was involved a supporting a major litigation at the Tropicana Casino & Resort Atlantic City where what was supposed to be a $180 million project almost doubled to $300 million. Hill provided technical expertise in resolving the claims and litigation support. It also helped manage the completion of the construction. According to Richter, "... we became a construction manager as a result of that project and eventually also became involved in project management and program management afterward."
Hill continued to expand its management role (re: Troubled Project Turnarounds") at the City of Niagara Falls, NY. Hill helped the City gain effective control of the stalled construction of its wastewater treatment plant project and maintain positive liaison with State and Federal regulatory agencies. Hill then acted as the City's Construction management (CM) for the completion of reconstruction of the wastewater treatment plant. The City had actually been one of Hill's first clients in 1977 when it hired the firm After having been impressed by its work for a Contractor who was in a claims situation with the City. Similar troubled project CM work took place at the Point Pleasant, Pa Water Intake and Pump Station.
Moreover, during this time frame Hill became one of the initial Project Management Oversight contractors (PMOC) for the Federal Transit Administration (FTA) during the construction of the Sacramento (CA) Light Rail. Hill next did work for the FTA on the LA Metro. Hill was now included in this FTA list of PMOCs who were mostly arge, established CM firms such as Daniel, Mann, Johnson, & Mendenhall, Fluor Daniel, Parsons Brinckerhoff and Stone & Webster, among others. By 1984 Hill had opened its Los Angeles Office.
It was also in 1988 that Hill entered other distinct expansions of its services by acquiring first Gibbs and Hill an engineering / design firm in New York City. Also in 1988 Hill entered the environmental market by purchasing, Kaselaan & D'Angelo (K&D) , an air-quality design firm that specialized in asbestos clean-up consulting. The acquisitions raised the company revenue to $200 million with over 2,000 employees.
Hill entered the Program Management service sector in 1991 when it became the Program Manager for the New Jersey Turnpike Widening Program (Interchanges 11-14). This $543 million project involved nine design sections and seven construction sections and over 50 separate construction and procurement contracts.
However, despite these successes, Hill's latest acquisitions of the design and environmental firms proved ultimately unsuccessful and Hill International sold Gibbs and Hill in three parts to United Engineers, then a subsidiary of Raytheon in 1993 and K&D to ATC Environmental, of Mount Laurel, NJ in 1995.
At this time, and partially as a result of Hill's investment in Gibbs & Hill and K&D which caused net losses, Hill's bank financing disappeared. As Hill's business fell off with sales bottoming out at $25 million and the workforce declining to 250 employees, in late 1995 Hill's major creditor, First Fidelity Bank, N.A., sought immediate accelerated payment of a loan of $6.1 million. The Bank alleged that an event of default had occurred when Hill sold off Gibbs and Hill that had served as part of the collateral for these loans. If the bank won the litigation, Hill would have become bankrupt. Hill however prevailed. Then Hill began a successful turnaround by concentrating on its core construction claims business and seeking to expand its growing construction / project / program management sector.
Becoming truly international
Hill has been "International" since its beginnings. Some CMS clients who had become Hill clients were involved with projects in Europe and Africa, including for example an early iron pellet plant project (in the late 1970s).
Then in 1981, Hill represented a Filipino labor contractor providing on-site claims and dispute resolution services at King Khalid Military City a project being built in Saudi Arabia by the United States Army Corps of Engineers. The form of contract was the FAR.
Hill first attempted to open an non-field overseas office in London in 1981 when it hired John A.W. Tanner, an executive with Pullman Swindell (now Swindell Dressler International Co.) The venture was ultimately unsuccessful and the office closed in 1985.
However, Hill continued to expand its international claims work. Hill's contacts in the nuclear plant claims arena included General Electric (who used Hill services on its Boiling Water Reactor) claims. GE overseas subsidiaries used Hill's services on several claims in Egypt, including the Abu Sultan Power plant and other projects in the early 1980s. Furthermore, Hill assisted a Spanish joint venture to evaluate their potential claims against the government of Kuwait on a major road modernization project in Kuwait City. This continued business in the middle-east led Hill's management to target this region for its overseas office.
By this time, in 1983, Richter had authored a book, International Construction Claims, Avoiding and Resolving Disputes and the international momentum landed Hill in Abu Dhabi with an independent overseas office that was turning a profit from day one. Hill had landed the role as a lead consultant for the Abu Dhabi Claims Committee.
However, Hill continued to pursue offices internationally, elsewhere. In the early 1990s, Hill was picked by Bechtel to help it guide the completion of the Channel Tunnel Project. The project to build the undersea leg between England and France began in 1986. But as work progressed, the owner, Eurotunnel, and the Anglo-French consortium responsible for design and construction, TransManche Link, were plagued by severe cost, schedule, and safety problems. By 1990, the banks funding the project got involved. When it became clear that the project was at risk, Eurotunnel called on Bechtel to get the project back on track. Hill was hired by this rescue team to perform claims analysis and mitigation. Hill had a project team working with Eurotunnel for several years and eventually opened an independent office in London again.
Hill executives then sought to bring in qualified European staff to run the European offices. Hill hired Raouf Ghali, educated in the US. Ghali had recently been hired by Hill and had worked leading Hill on the Petronas Twin Tower project in Kuala Lampur, Malaysia. Ghali then working in the London office (but also working from his home base of Athens, Greece) began to achieve a great deal of success in expanding the Construction Management group of Hill. Hill began work on the Athens Metro, the National Library of Latvia and in 2002, the Palm Islands Project in Dubai. By 2004, Hill had about 500 professionals working in 25 offices worldwide (including field offices). Hill moved its corporate headquarters from Willingboro to Marlton, NJ in 2002.
From 2002, when Hill's revenue was $73 million, revenue rose to $197 million in 2006, a 170% increase, fifty-five percent of its revenue was now coming from Europe and the Middle East.
Becoming a public company
Going public via a reverse merger
Richter had always envisioned Hill as a public company. The financial difficulties of the mid-nineties however made the approach of going public through an IPO unattainable. In 2004 Arpeggio Acquisition Corp., of New York was formed in April 2004 as a "blank-check company" -- meaning its business activities had not been determined. It was established for the sole purpose of buying a company within 18 to 24 months of its initial public offering. While it had not determined what type of company it wanted to buy, it had focused on buying one in the U.S. or Canada.
On December 5, 2005, Arpeggio and Hill announced that they entered into a merger agreement. Under the terms of the agreement, Hill's shareholders received 14.5 million shares of the common stock of Arpeggio at closing, and owned 63.6% of the combined entity. When the deal closed on June 28, 2006, Arpeggio changed its name to Hill International, Inc. and on June 29 began trading as HINT on Nasdaq. Hill's stockholders nominated six members of the combined company's nine-member Board of Directors. Richter remained Chairman and CEO of the combined company, and Hill's then current management team also remained in place.
When HINT began trading on Nasdaq on June 29, 2006, the price of HINT was $5.30 per share. At the end of the year the price was $7.15 per share. Hill achieved record revenue of $197 million with record net income of $11.3 million. Most of this was due to organic growth in the Project Management sector of the company. With the cash infusion from going public Hill could now begin a series of acquisitions and mergers that grow the company as Richter had envisioned in the prior decades.
Hill made one major acquisition in 2006 after going public - the purchase of J. R. Knowles (the largest construction claims company in the world) for $13 million. As a result Hill assumed the title of the largest claims firm in the world. The Knowles acquisition also provided access to new markets in Southeast Asia, Australia and Canada.
In 2007, Hill implemented its plan to acquire additional Project Management companies, primarily KJM & Associates Ltd., Bellevue WA, Again this move opened up new markets to Hill in the western US. This acquisition and continued organic growth resulted in record revenues of $290 million (with record net income of $14.1 million). The stock soared to close the year at $14.17 per share.
Move to the New York Stock Exchange
This consistent growth allowed the company to be listed on the New York Stock Exchange (NYSE) in 2008. Now designated as HIL, it began trading on February 22, 2008 at $13.14 per share and six months later achieved its highest price ever at $19.30 per share on August 28, 2008. The company strategy continued to be acquisitions to fuel and supplement its organic growth, having completed over 20 acquisitions of project management and claims consulting businesses worldwide, thus gaining entry/expanding into the United Kingdom, Spain, Mexico, Poland, Australia, Brazil, South Africa and Turkey.
In the period 2008-2011, Hill acquired the following companies:
- John Shreeves Holdings, Ltd. London
- (a majority stake in) Gerens Management Group, S.A., Madrid,
- Euromost, one of the leading project management firms in Poland,
- PCI, a firm that provided scheduling, construction claims, project management support, and software (for project management and scheduling) sales and support services throughout the western United States
- Chitester, a firm that provided construction claims and dispute resolution services nationally based in Tampa
- Boyken International, Inc., a project management, cost estimating and construction claims firm headquartered in Atlanta
- McLachlan Lister, a consulting firm in Australia
- TRS Consultants, Inc., is a construction management firm headquartered in San Ramon, California
- (a majority stake in) Engineering, S.A., one of the largest project management firms in Brazil.
Through these acquisitions Hill expanded the reach of its markets to include Latin America and the Caribbean, western US and continued expansion into central and eastern Europe. In 2011 Hill's revenue was being generated from the following regions:
- U.S./Canada, 29%
- Latin America, 12%
- Europe, 23%
- Middle East, 27%
- North Africa, 4%
- Asia/Pacific, 5%
The Arab Spring Crisis
However, Hill was not impressing investors and after the economic collapse of 2008/2009, HIL never recovered, trading within a narrow range around $5 per share for the past 8 years. The profitability of the company was masked by high overhead (corporate) costs. For thirty years prior to going public, Hill was essentially a family run business. Irvin Richter was in charge ultimately with almost all stock controlled by his family. Beginning in 1995, Richter's son, David joined Hill as (ironically) Vice President and General Counsel. The son became President of the Project Management Group in 2001, then served as the President of Hill from 2004 until August 11, 2016. He also served as the Chief Operating Officer also from April 2004 to 2014, when he replaced his father as CEO. As such management has been historically shareholder unfriendly, governance-averse, deeply entrenched and overpaid. For example in 2011, when Hill showed an operating loss of $3.895 million, the CEO, COO, CFO and Presidents of the two operating divisions were paid $3.715 million.
Due to the civil unrest of the Arab Spring, which commenced in Libya in February 2011, Hill suspended its operations and demobilized practically all of its personnel from the country. Libya was one of their largest markets (accounting for almost 10% of backlog at Year End 2010). In 2012, following the lack of payments related to this work, HIL reserved a $59.9 million receivable from the Libyan Organization for Development of Administrative Centres. Since then, payments totaling only $9.5 million were received, causing a write-off of the rest of the receivable. The delays in and lack of payments put a considerable strain on liquidity, which meant Hill had to fund their operations resorting to expensive debt financing and equity dilution. In September 2016, they even defaulted on their debt, which caused the impossibility of utilizing any of the $2.5 million of borrowing capacity still available until a waiver was received.
Hill actually recovered well from the Libya loss in succeeding years. Revenues grew strongly from 2012, driven mainly by organic growth in the Middle East. And while operating profits rebounded nicely, shareholders for the most part did not see a corresponding increase in share price as most of the profit gains were offset by interest expense from a heavy debt burden and then significant dilution in order to reduce that debt burden. However, while shareholders haven't seen any gains as the business has recovered, top management certainly continued to benefit. In 2014, when Irvin Richter retired, the CEO, COO, CFO and Presidents of the two operating divisions were paid $4.73 million, not including over $1.175 paid to the retiring Richter for "unused vacation". Between 2011 and 2014, Hill had a net loss for three of the four years.
The interest burden reduced the rate of (but did not stop) acquisitions by Hill. Between 2012 and 2017, Hill acquired the following companies:
- Binnington Copeland Associates, a firm with offices in Cape Town and Johannesburg
- Collaborative Partners of Boston
- Cadogans of Scotland
- IMS, a Turkish project management firm
Proxy fights
On May 4, 2015 DC Capital made public a letter to Hill's management offering to pay a minimum of $5.50 to take the company private. In their offer to Hill, DC referenced two concerns: disproportionate exposure in the Middle East, and the lack of sufficient fiscal discipline to maximize shareholder value, particularly excessive management compensation. The next day, Hill's board rejected it and implemented a poison pill, which was later rescinded. Again in December 2015, DC Capital partners proposed to acquire the company for a reduced offer of $4.75 per share, which still represented a premium in excess of 45%. Again the board rejected it.
On May 14, 2015 Bulldog Investors disclosed a 5% position accumulated in Hill since the end of 2014. Most of the shares were bought in the two months leading up to the DC offer. They then continued buying after the offer became public and sought to put two directors on the company's board.
Management eventually won this proxy battle by promising to cut costs, increase margins, and improve shareholder returns. Almost immediately after winning the proxy fight, management backed off their promises of improved margins/cost cutting made to shareholders and announced a restatement of their past results.
Bulldog Investors believed these promises were unfulfilled and in 2016 launched a second proxy battle, running on the agenda that Hill's stock price was significantly below its intrinsic value and what they called the "Richter Discount". Management fought aggressively to beat the activists, including postponing the company's annual meeting at the last second when it was clear they would lose, but Hill eventually settled and put Bulldog's nominees on the board; as part of that move, Irvin Richter (the father) fully retired and Craig Martin, former President and CEO of Jacobs Engineering, eventually replaced David Richter as Chairman.
As part of the management defense in 2016, Hill put the Claims Consulting Group for sale beginning in 2015 in an attempt to get a cash infusion to pay off the current debt and concentrate on growing the Construction/Project/Program management Group. However, the sale did not occur until after the Proxy Battle of 2016. On December 20, 2016, Hill announced that it had entered into a definitive stock purchase agreement to sell its Construction Claims Group to Bridgepoint Development Capital, part of international private equity group Bridgepoint, for $147 million in an all-cash transaction.. The final deal closed on May 5, 2017, with a reduction in the purchase price of $7.0 million, to $140.0 million in cash, an increase of $3.0 million in the working capital that Hill must deliver to Bridgepoint, from $35.4 million to $38.4 million, and additional specific indemnification of the buyer. The former Hill Construction Consulting Group is now doing business as HKA.
Changing of the guard
The Bulldog Investors proxy battle ended in the election of three independent directors to the board replacing three entrenched directors, one other entrenched director resigned, majority voting for the election of directors was implemented, the company committed to reduce its board to 7 members over time, and an annual advisory vote on executive compensation was instituted.
After the sale of the Construction Claims Group was finalized in May 2017, David L. Richter, CEO since 2014, stepped down from the role and left the firm. Named as interim CEO was Paul Evans, who joined Hill's board last August as one of three new members nominated by Hill activist investor Bulldog Investors. A permanent replacement has yet to be named. Evans had been vice president, chief financial officer and treasurer of MYR Group. Evans stated that, "This company on a contract margin basis does very well. Something happens with this company when we take that number down to the bottom line. So we're going to look at all costs and where we have to make adjustments." Speculation remains that the firm continues to be a takeover target.
Hill is in a state of change. Following the sale of the Construction Claims Group, Hill has undergone several major layoffs in administrative staff as part of a Profit Improvement Plan. Hill has not been able to complete required quarterly operating statements since the first quarter of 2017. As a result of its failure to timely file its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2017 ("Form 10-Q") (or any subsequent Form 10-Qs), the NYSE informed the Company that, under the NYSE's rules, the Company will have six months from August 15, 2017 to file the Form 10-Q with the SEC. This extension was further extended to July 16, 2018. In November the CFO, John Fanelli, left and Marco Martinez formerly of the Pernix Group became Interim CFO. Hill is also late submitting its Form 10-Ks and annual report. Hill's stated reason for these delays is that it is continuing to compile information regarding, and complete the proper accounting and related tax treatment of, the sale of the Construction Claims Group which was completed in May 2017, and to assess the Company's accounting for comprehensive income (loss) in conjunction with the accounting for the sale of the Construction Claims Group.
However, through this period of adjustment, and despite a call to re-focus on US projects, Hill has continued to win more International (eleven) than US (eight) contracts for its services.
It remains to be seen if Hill can remain a viable entity or will be the subject of a future takeover. As one of the largest shareholders of HIL, Petrus Securities, L.P., stated during the proxy battle of 2016, "Hill first became a public company in 2006. It has reported public results for ten years: 2006 - 2015. For those ten years in aggregate Hill has lost money, with a cumulative reported GAAP net loss of $4 million. Hill is in a fee for services business; it is not a biotech working on a cancer cure. Services businesses should be profitable almost every year, and certainly every decade."
Pending the release of the required 10-Ks, Hill's latest release of its financial outlook was issued on March 30, 2018 as a press release and stated that, it "expects consulting fee revenue between $400 million and $415 million for 2018. As of March 23, 2018, the Company had approximately $15 million in cash and $37 million in debt or a net debt position of approximately $22 million. Our current backlog as of February 28, 2018 is approximately $862 million. The Company's total estimated backlog at December 31, 2017 was $845 million compared to $831 million at December 31, 2016."
References
External links
- Official website
Source of article : Wikipedia
0 Comments