Member Article

The lengthy war of words between buyer and seller that has followed Hewlett-Packard’s acquisition of Autonomy gives an interesting insight into the world of international M&A.  The allegations made by HP of “accounting improprieties” against the senior management team of Autonomy began soon after the completion of the deal in October 2011 and continue with the recent filing of Autonomy’s restated accounts by HP.  Revised turnover and profit of £81.3 million and £20 million compared to the audited accounts on which the deal was completed of £175.6 million and £106 million respectively are an eye watering difference by anyone’s standards

Both sets of accounts have been signed off by Big 4 accounting firms and therefore should give a “true and fair” view of the financial position of Autonomy.  It could be that the cause of the discrepancy is entirely in the treatment of revenues and costs under the two financial accounting standards – International Financial Reporting Standards and US Generally Accepted Accounting Principles.  Yet another example of the regulatory environment muddying the waters for acquirers of all sizes.  However the current HP CEO, Meg Whitman, claims that Autonomy made a “wilful” effort to “inflate the underlying financial metrics of the company in order to mislead potential buyers” and that these claims are supported by a senior Autonomy manager whistle-blower who came forward shortly after Mike Lynch left the company.

So what about the due diligence?  In a deal worth $11 billion surely HP would have employed a professional third party organisation to conduct robust and thorough due diligence of Autonomy’s financial records?  Again matters seem slightly less clear – as other high profile transactions demonstrate perversely the larger the deal the less the due diligence that seems to follow.  Some of our clients who have been subject to the rigours of a full due diligence exercise would be forgiven for being slightly bemused at how this can have happened.

Overall whilst this story clearly has some way to run there remain some interesting themes for our clients.

 

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