Tuesday, 20 November 2012

Caveat emptor

Those analysts (including myself) who have covered the enterprise search and information management arena for the last decade, had a general consensus that when Autonomy's market capital reached $5 billion, the CEO Mike Lynch and co. would sell up to one of the software behemoths, and Oracle was top of most analyst's lists.
Well it went to $6 billion with some really smart and complimentary acquisitions (Interwoven, Meridio, ZANTAZ etc),  and I even went on record as saying that potentially Autonomy could be the UK's next CA or Oracle.
Then HP paid (literally) 'top dollar' at $10 billion for the company in 2011, but didn't really appear to have a game plan for the integration of the technology into HP's developing information management stack. It was noticeable that HP didn't want to keep Mike because they didn't appoint him to the board. It was also noticeable that Autonomy became a very independent unit within HP, even to the point of re-hiring people it lost when it was first acquired.
Now HP says it has to take an $8.8 billion charge on the acquisition after "serious accounting improprieties".
This is more than a little ironic as a great deal of Autonomy's expansion in the US came after a street (collective noun) of banks bought Autonomy's IDOL and other software to help them identify their own accounting 'holes' after the Lehman Brothers collapse and the sub-prime debacle.
Were there "accounting improprieties"? I am not qualified to say. But if I was going to spend $10 billion on a company with a market cap of $6-7 billion, I would want to do a heap of due diligence first. Whilst some things will always be missed in the M&A process, overestimating by 88% a company's value (which is what HP now believes) is a huge error on any accountant's spreadsheet.
So what next? Lots of fees for lawyers and (hopefully better) accountants, and there is a good chance that much of the really good software that Autonomy brought to HP will be lost in the melee.
My final thought is of a sign I saw in a tableware shop in Palo Alto "You broke it - you bought it".

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