If you need any evidence that large-scale M&A can be problematic, look no further than HP and its acquisition of British software group Autonomy. Just a year after paying $11bn for Autonomy, the Silicon Valley giant has written down its value by $8.8bn, including $5bn that it says resulted from"serious accounting improprieties, disclosure failures and outright misrepresentations" before the acquisition.
Of course, acrimony and finger pointing are not unusual when it comes to botched M&A. Autonomy’s founder Dr Mike Lynch had already left the company just six months after the deal completed, and the squabbling over whether he or HP made the decision had barely died down before the latest revelations surfaced. But calling in the SEC and Serious Fraud Office, as HP has done, is a different ball game entirely. Dr Lynch, meanwhile, says that HP’s strong words are an effort to deflect from its own poor performance. Whatever the case, someone will be proved wrong, a very high stakes game indeed.
Even UK analysts who often experienced a somewhat fractious relationship with Dr Lynch over the years may be somewhat taken aback by the turn of events. Many often complained that Autonomy's disclosure was poor, and that generating a true picture of the business was obfuscated by the many acquisitions Autonomy itself undertook. Some scribblers were very publicly cold-shouldered.
To me, though, Dr Lynch's behaviour smacked more of arrogance than the criminality HP is alleging. And as a FTSE 100 company I'd always assumed that its accounting practices were on the right side of the law, even if they meant that putting a fair value on Autonomy's equity was a matter of guesswork. Certainly its auditors, Deloitte, never made any suggestions of financial impropriety - and nor did the 15 advisers HP had working on the deal, who one would assume had plenty of time to peruse Autonomy's books before stumping up such a hefty sum.
HP shareholders now have a messy legal battle to look forward to, with little chance that they will get their money back - and Dr Lynch will be fighting hard to restore his reputation. Former Autonomy shareholders, meanwhile, must be thanking their lucky stars that they can watch from the sidelines. They are testament to the central premise of this week’s cover feature that when it comes to M&A, it's more likely to pay to be prey rather than predator.
