The Complexity of M&A: An Investigation of the Catastrophic Merger between Hewlett Packard and Autonomy Corporation Plc.

Mads Frederiksen

Student thesis: Master thesis


There is a general problem within the industry of M&A where a large proportion of completed transactions fail to generate the required return for the investors, and are thus categorized as failed. This is surprising due to the large volume and resources being spent on acquisitions. The M&A process can however be described as a rather complex interaction between a broad range of different actors that have an impact on the outcome. The reason for the high failure rate within M&A can therefore be found in various places. This thesis will analyse this process mainly from a financial perspective and test whether or not a real life valuation is deemed appropriate compared to the valuation of the same target company, based on academic financial theory. The thesis will further be based on the results of the financial analysis and empirical statements from industry experts, commenting on the performance of a thorough financial due diligence that would have identified any red flags that could have had an impact on the final valuation. The thesis is conducted as a single case study based on Hewlett Package’s acquisition of the British software company Autonomy which was acquired for USDbn 11.2. HP however recorded a massive write down of USDbn 8.8 in the subsequent year. Much of this write down could be traced back to possible fraudulent financial reporting of Autonomy’s performance. The valuation conducted in this thesis estimates the value of Autonomy to USDbn 6.4 which suggests that the offer price paid by HP was massively overvalued. The reason for this valuation could be many, and some practical implications on performing valuations in practice are identified, which could cause a deviation from the theoretical value of a company. Testimony statements from industry experts also suggest that the identified redflags would be rather difficult for a due diligence team to uncover, if the management of Autonomy was actively trying to hide the financial health of the company. The financial focus will also be widened in order to include other explanations to why Autonomy could receive such a high value. The psychological traits of CEOs are introduced as an explanation for why some CEOs are committed to completing acquisitions no matter the cost, and no matter how many advisors speak against it. Cultural issues are also introduced as a possible reason for why the post-merger integration failed, and why Autonomy failed to fulfill expectations, and subsequently record the massive write down.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2021
Number of pages88