Re: Autonomy reported profits of £105.7m for fiscal year 2010, The real profit was just £19.6m
"Plus $105M profit on $175M turnover, how come no-one called BS on that?"
In the world of software and intellectual property that's possible. Whilst Autonomy's business was different, consider the case of a packaged office software suite, which the code owner sells to distributors at say $150. Once they've paid for the development up front, the marginal cost of producing each new sale is the cost of a cardboard box and an installation disk (if you're lucky).
In the consumer world you've got big marketing costs and fat overheads, in the B2B world they are generally far lower. I used to work for a B2B software house (not Autonomy) and our gross margins were huge, our corporate overheads minimal, our marketing budget tiny.
Curiously enough the firm I worked for's accounts were crooked, directors fraudulent, and the firm (with turnover in excess of £100m) managed to go bust on the back of debt fuelled acquisitions, despite being the largest UK company in its field, and one of the largest in the sector in the world, with a roster of blue-chip customers. Few large software companies develop their own code from scratch, they buy smaller more innovative companies, and that means a continual trail of more (or generally) less successful acquisitions, over-hyped, over-priced deals, shed loads of debt, and both sides of the deal trying to ramp up the importance of the acquired company and its product. That's the world of software, IMHO, and it's why big companies make bad deals, and often fail to deliver on the promise of the acqusition.
HP are guilty of both gross negligence in their due diligence, but also of failure of their duties to shareholders by overpaying so outrageously even on claimed profits. And strategically they are guilty of incompetence by having no realistic plan to deliver value from the acquired business, and of strategic malfeasance by their failure to learn from their own past mistakes, or those of others in the industry.
HP bought EDS, but the parasite has now taken over the host, and HP is not in my view a technology innovator, not a software house, just a lard-bottomed, poor quality outsourcer making big promises to customers that (to judge by the unhappy experience of my current globo-corp) HP cannot deliver on, despite high outturn prices. Given those opinions, I wouldn't expect them to make a success of M&A, but it's important to remember that M&A is the last refuge of scoundrel directors, seeking a smokescreen to hide their inability to run their existing business.