In 2008 Microsoft acquired FAST Search and Transfer and fairly quickly it became known that there were some serious financial irregularities which were analysed in some detail by Stephen Arnold. Buying sofware companies is always a challenge (I know from painful experience!) because of the difficulties of deciphering the accounting practices on how the company treated licence and maintenance income over the notional life of the software. You would have thought that HP would have learned a lesson from Microsoft when it came to acquiring Autonomy, but that appears not to have been the case!
In a press release today about the Q4 and 2012 Full Year accounts there is this astonishing paragraph
“HP recorded a non-cash charge for the impairment of goodwill and intangible assets within its Software segment of approximately $8.8 billion in the fourth quarter of its 2012 fiscal year. The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation plc that occurred prior to HP’s acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term.”
The wording is very definite. HP are not just raising the possibility of misrepresentations but is stating that they occurred. The writedown for Autonomy is around $5 billion, or around half the purchase price. It seems that someone internally within the Autonomy senior management blew the whistle. HP have reported the issues to both the Securities and Exchange Commission in the USA and the Serious Fraud Office in the UK. HP states that it is still committed to Autonomy, but then it could not really say anything else without having to write down even more of the purchase price. It is also worth recalling that in September 2011 Oracle released a press release about presentation given by Mike Lynch to Oracle in which the company stated that the market value of $6 billion was way too high, let alone the premium that HP paid on top of the market value. It is not only the Autonomy Board of Directors that will have some questions to answer but also Deloitte as Automony’s auditors and the senior management team of HP at the time and their advisors. There was clearly not enough due diligence on the part of HP.
It is sad to see this sort of problem sour the reputation of Autonomy. The technology vision was outstanding and the company did much to raise the profile of enterprise search even if it was not exactly brilliant at post-sales implementation and customer support. HP may remain loyal to ‘Autonomy’ at present but the current financial problems will inevitably accelerate the rate at which the Autonomy brand becomes steadily less visible. On the other hand Microsoft still makes much of the FAST name four years after the acquisition!
Martin White