I know that I shouldn’t be amused by these sorts of things, but I can’t help myself. Recently our good friends at HP announced that they are writing off $8.8 billion (yes, B, $8,800,000,000) worth of a company that they bought a year ago as the value of the company was severely overstated and there was, according to HP, “serious accounting improprieties” and “outright misrepresentations”, before they bought Autonomy for over $10 billion in October 2011.
Now my heart breaks for the shareholders of HP and if there was fraud involved I trust that the legal authorities will make it all right…but I suspect that the very large $8.8 sum is very much gone. I have some observations to share and point out for everyone else who is considering financing someone else’s retirement to a tropical island.
First of all, way back in 2011, everyone said that HP was paying way too much for the company. Other large tech companies such as Oracle went out of their way to point out that the price HP was paying was way too high and the products were way too green. The dream of magically printing money using their technology was just too good for HP to walk away from…but it was also just too good to be true.
Secondly, does anyone remember what Autonomy does? They were a BI (Big Data to be more specific) company based in the UK whose claim to fame was that they had mastered some very complex data extraction technologies of unstructured data streams (pictures, Twitter, Blogs, you name it) and then applied some fancy statistics to find bad guys for the government and good customers for businesses.
They had a healthy roster of very good clients that most companies in this sector would die for and they were at the top of a buzz word industry. What could go wrong? Well, I suspect that there are a lot of people asking themselves that very question right now. The part that I find most amusing in a schadenfreudeian way is that one of the advertised use cases of the Autonomy toolset is to stop fraud and unexpected write-offs from happening. How’d that work out for you HP? Sounds like it is time to review the marketing material!
Ultimately the courts and lots of lawyers will try to sort this all out and all of the involved consultancies and auditing firms will write big checks to HP but those of us not on the hook for this should still learn the most important lesson in this mess. If something is too good to be true, it probably is.
Sounds like something my Grandmother would say…wait, she did say that. So, to put it in more relevant terms, no matter how much your models suggest that something is a good deal, don’t assume that it is. Good executives put just as much energy into NOT doing something (i.e. showing that the new investment is a bad idea) as they put into doing it (i.e. showing the shareholders and board how good of an idea it is).
Good executives look not for reasons why projects and acquisitions will succeed, but rather why they might fail and what that post mortem will look like in advance to make sure that they actively address issues before they come up and develop mitigation plans and strategies while they have the ability to change things.
Momentum is a part of the problem in this case as well, it appears that HP tried to get out of the deal late in the game but couldn’t as they had been contractually bound and were unable to find sufficient reasons for exiting without paying big penalties. They obviously needed a better bail-out mechanism to save the company, oh I don’t know, a few billion dollars.
Let’s not pretend that anyone is above making these mistakes, but that doesn’t mean we should ignore them either and pretend that they are a cost of doing business. So for all of you movers and shakers out there, here’s to making sure that we not only source the right data, but also use our good management and decision making strategies with it.