When Hewlett Packard acquired UK big data vendor Autonomy the deal was seen as a massive bet for HP. With an $11 billion price tag and promises of Autonomy really moving the needle on HP's business, there was much excitement. But there was also a significant amount of head scratching from technology commentators - the price tag seemed too big for what HP was getting.
Indeed, the acquisition was, by most measures, a complete disaster. It led to a $5 billion write-down in 2012 by HP (as part of a larger, $8.8 billion total writedown) and was a significant contributing factor in HP CEO Leo Apotheker's fall.
Upon reflection, HP started to realize that it had bought a lemon (or at least paid Champagne prices for some mid-rate lemonade) and made the allegation that Autonomy's management grossly overstated its financial performance, to the tune of $5 billion. This was a claim that Autonomy's former CEO, Mike Lynch, strongly disputed - he argued that much of the problems that HP faced with Autonomy stemmed from differences in accounting standards between Autonomy's home in the UK and HP's in the US. Essentially software sales in the UK are treated differently under GAAP, the accounting standard in use in the US, than they are under IFRS, the UK accounting standards. Whether these differences can cause such a massive change in valuation is an interesting conversation.
In any case, HP accused Autonomy and its management of fraud and brought actions on both sides of the Atlantic. Today the United Kingdom Serious Fraud Office announced that it has closed its investigation into the circumstances surrounding the acquisition. According to the SFO, it "found insufficient evidence for a realistic prospect of conviction.”
It's a clear victory for Autonomy's former management - in particular Lynch and Sushovan Hussain, Autonomy's former CFO. Indeed a website that Lynch set up had this to say about the decision:
As we have always said, HP’s allegations are false, and we are pleased that after a two-year review of the material presented by HP, the SFO has concluded that there is not a case to pursue
HP however isn't giving up, the company is still working with US regulators and hoping for some action on this side of the Atlantic. In a statement the company said that:
HP remains committed to holding the architects of the Autonomy fraud accountable. As the SFO made clear, the U.S. authorities are continuing their investigation and we continue to cooperate with that investigation
The chances of the US taking action on this matter seem very slim. Perhaps it is time for HP to give up on this one and brand the words "caveat emptor" into its board room table. Methinks they'll take a lot more care with future acquisitions.
