HP’s Cautionary Tale Of ‘Bold’ IT Vendor Acquisitions

It was a “bold action.” That’s how HP CEO Leo Apotheker put it, when he announced HP’s $11 billion acquisition of EIM vendor Autonomy in August 2011. Stated Apotheker: “We believe this bold action will squarely position HP in software and information to create the next-generation Information Platform, and thereby, create significant value for our shareholders.”

Today, that boldness has turned into bewilderment. HP announced a series of allegations against Autonomy’s management team, which, HP asserts, lead to a “non-cash impairment charge of $8.8 billion related to Autonomy in the fourth quarter of its 2012 fiscal year.” From the HP statement:

HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition by HP. These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal. We remain 100 percent committed to Autonomy and its industry-leading technology.

Amid all the HP political and fiscal carnage that will surely keep coming out of Palo Alto, it’s interesting to compare how SAP has done with its boffo buys during the past five years—namely, BusinessObjects, Sybase, SuccessFactors and Ariba.

SAP has, in fact, made more than 20 acquisitions since 2007 totaling more than $20 billion. Once a mostly organic product development organization, SAP leadership has shown that it’s unafraid to spend the euros—for the right product set, leadership team and customer base. Nowhere was that more obvious than with the SuccessFactors purchase, which was for SuccessFactors “cloud DNA” more than anything else.

The point—as evidenced by the HP news today—is that there are no guarantees that M&As will always go smoothly or achieve the “synergistic returns” espoused by corporate chiefs. It can be a hard business (especially if one party is covering up fiscal improprieties), and the HP saga just goes to show the importance of good due diligence, rather than bold action for the sake of being bold. (Um, TomorrowNow, anyone?)

One key facet of big-time acquisitions is merging the customer bases—integration not only from a technical perspective but from cultural and customer points of view as well. I think SAP deserves high marks for its acquisition strategy and vision so far.

But right now, I believe SAP is facing a challenging hurdle when it comes to the execution part: convincing its on-premise customer base that its new cloud options make business, financial and technical sense to them. (One could argue that it’s also doing that in nudging customers to do BI 4 upgrades as well.) Recent survey data from the SAP UK & Ireland group demonstrate customers’ confusion over cloud migration, integration and costs.

As I noted in a post last year, it seems like every time there is a traumatic event at HP (and there have been many of late), some analyst or blogger floats the idea that HP should buy SAP (i.e., “In Case of Emergency, Break Glass and Buy SAP!”). Hopefully, there’ll be none of that nonsense this time around.