THIS paper does its best to avoid editorial hyperbole, but when a firm takes an $8.8bn writedown on an $11bn acquisition barely 12 months after the deal I might just make an exception. It’s completely flabbergasting.
Analysts and shareholders alike may have baulked at the steep price that Hewlett-Packard shelled out for UK tech darling Autonomy last year, but surely even the staunchest critics couldn’t have been expecting this – a net loss of almost $7bn at the US computer giant and accusations (strongly denied) of “serious accounting improprieties” at its one-year-old albatross. And that’s not to mention a serious blow to the perception of British start-ups round the world.
Let’s be clear, HP was hardly a glowing example of success even before it took on Mike Lynch’s baby.
Its shares have fallen more than 55 per cent over the past year and there’s been something of a revolving door at the top, with chief executive Meg Whitman brought in to replace Leo Apotheker, who was ousted after just 11 months in the job.
But it’s not just Lynch’s name – and the judgement of the Hewlett-Packard board – that’s being dragged through the mud.
The multi-billion dollar deal pulled in a host of big players on the advisory side too – not least Autonomy’s auditor Deloitte (and its own auditor KPMG) – singled out by Whitman on a damning conference call yesterday afternoon, where she implied it would have been “a little challenging” to go in and be asked to double check the work of a respected big four firm.
No matter that HP brought on another of the big four – PwC – to investigate the irregularities, and no matter that Deloitte has not actually been accused of any wrongdoing, this could strike yet another reputational blow to the accounting profession.
It’s already under pressure over competition, and – with immaculate timing – as of yesterday the subject of a review by the Financial Reporting Council and the Institute of Chartered Accountants of Scotland into “the competencies and professional skills of auditors”.
Being dragged into a transatlantic fiasco of these proportions is the last thing the industry needs.
LEGAL FIRMS’ RESULTS IN THE SPOTLIGHT
Meanwhile on the less under-scrutiny side of the professional services world, Allen & Overy kicked off the legal reporting season proper yesterday with a 2.7 per cent fall in turnover.
Law firms are yet another casualty of the stagnant corporate and M&A market that has dogged the City for the past few years (bar the odd $11bn takeover...)
Wim Dejonghe invoked every business leader of recent months when he called the tough outlook “the new normal”. With A&O’s Magic Circle rivals also set to give an overview of their first-half performance over the next few weeks, we won’t have to wait long to find out if he’s right.
Elizabeth Fournier is news editor of City A.M. @ej_fournier