As Louisiana business owners can attest, expansion by acquiring a new business can be an excellent way to grow your company. Regardless of the structure of the deal, it is vital for the purchasing business to do its due diligence to ensure that the purchase will be profitable and as seamless as possible. Due diligence is also essential to avoid costly business disputes and litigation.
Perhaps an example of what not to do, Hewlett-Packard has made another misstep in the area of mergers and acquisitions. The technology company recently released information that it took an $8.8 billion accounting charge, in part related to accounting issues at Autonomy, the British software company that Hewlett-Packard purchased for $10 billion last year.
Hewlett-Packard has had a history of deal-making mistakes. Hewlett-Packard's announcement comes one quarter after another big write-down related to Electronic Data Systems, a company Hewlett-Packard bought several years ago.
The latest accounting charge caused a quarterly loss of $6.9 billion. Hewlett-Packard reported a $200 million profit in the quarter the prior year. The company issued a statement saying it discovered "'serious accounting improprieties'" and "'outright misrepresentations'" at Autonomy. Following news of the accounting charge, the Hewlett-Packard's shares fell more than 11 percent.
Hewlett-Packard has struggled to revive its business over the past several years. It has spent years turning to acquisitions to help it grow, spending at least $67 billion on acquisitions since 2001. To put it into perspective, the company's current market capitalization is worth around $23.4 billion.
At the time of the acquisition of Autonomy, many criticized it as being too expensive. Analysts have also been skeptical of the purchase. The large write-down, however, was very unexpected and came to many as a surprise. Hewlett-Packard issued a statement saying that the company remained "'100 percent committed'" to Autonomy, although it was "'extremely disappointed'" in the findings. Some say that there has been permanent damage to the company and its franchise, but the true effects of the write-down remain to be seen.
Source: The New York Times, "With Autonomy, Hewlett-Packard's latest deal-making misstep," William Alden, Nov. 20, 2012