John Hempton shows how HP should have known about Autonomy

Bronte Capital: Hewlett Packard and Autonomy: notes from my Santangels presentation.

Sales were $870 million.

Receiveables (sic) were $330 million – which is four and a half months of receiveables.

Deferred revenue is $177 million – just over half of receiveables.

This is really perverse for a software company. Software companies sell stuff that is barely tangible – they sell it up front and for cash. They have very few receiveables.

They do however have an obligation to service that software for a long time after they sell it – so the unearned income is relatively large (usually a multiple of receiveables).

Autonomy was booking as income lots of cash it had not received (which is why the receiveables were large) and not booking any obligation to provide future services for that income.

This is prima-facie suspect (and you could tell simply by looking at the balance sheet). All it required was basic applied accounting.

UPDATE: more here:

Barclays pocketed the biggest banker fee of the transaction at $18.1 million and Perella was paid $12 million. The company’s legal advisers included Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which advised the board.

On Autonomy’s side of the table were Frank Quattrone’s Qatalyst Partners, which specializes in tech deals and which picked up $11.6 million.

UBS, Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America were also advising Autonomy and were paid $5.4 million each. Slaughter & May and Morgan Lewis served as the company’s legal advisers.

Categorized: Investing

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