It’s been a hectic few months and I’ve got out of the habit of blogging. There’s is much IP news around and some good informed debate (more of the former than the latter) but the Hp and Autonomy alleged accounting scandal caught my eye this week and seems worthy of debate. Noodling on the facts, here is what this appears to be about:
- Hp announces it will buy Autonomy as a supposed central plank of the future strategy put forward by Leo Apotheker
- It then disposes of Mr Apotheker, only months into his reign
- But continues to buy Autonomy for a whopping $12bn
- Apparently 15 different advisory firms involved in the transaction failed to spot the accounting “irregularity”–combined fees earned likely some £600-750m–anyone feeling uncomfortable?
- And then, somewhat clumsily, loses the entire Autonomy management team (how can that be–did they think that the company would run by itself, when so much of Autonomy’s essence was its know how and trade secrecy?)
- Then puts its own head of strategy in charge
- And ends up 6 months later taking an $8.8bn (73%) write down against an asset acquired only 14 months beforehand.
Now that all takes some thinking through.
It is probable that Mr Apotheker’s original strategy saw Autonomy as a key asset in his strategic thinking (it would be hard to justify such a price premium otherwise) and it is also possible/probable that Autonomy’s big data solutions remained central to Hp’s strategy under the consumer focused Meg Whitman. It’s also possible/probable that withdrawing from the acquisition after Mr Apotheker’s demise would have been costly in terms of cash ( break fee and paying Autonomy’s adviser fees) and reputation (don’t ever sell to Hp, they can’t be relied on to close and change strategy like they change their underpants).
But at the heart of this are three interesting questions:
- How was Autonomy valued? in the World of Motorola Mobile being worth $12bn to Google, Meraki being worth $1.2bn to Cisco and Instagram being worth $1bn to Facebook, true fundamental value cannot apply so one has, I think, to justify the intangible merger premium by a 1+1=4 logic.
- What was the merger premium paid?
- Was Autonomy a strategic acquisition in the first place, and if it is no longer–does that justify the $8.8bn write down?
Mike Lynch was very impressive at the BVCA summit a few weeks ago, explaining what it takes to build a great company. I would also expect him to be a dynamic and charismatic negotiator. I’m trying to imagine the scene where he first persuades Apotheker to place a $12bn value on Autonomy, and then the scene revisted where Apotheker”s successor comes back in to say that Hp may want to change their minds. No mercy!
I’ll noodle on those three questions over the next few hours and attempt to answer them tomorrow. To this point its hard not to be more in Mike’s camp that “Hp are looking for scapegoats, and I don’t intend to be one…”.