HP’s $11.1 billion acquisition of Autonomy was one of the biggest tech acquisitions in history. What actually stole the headlines is not the news

1. DUE DILIGENCE, A VITAL
ELEMENT IN MERGERS AND
ACQUISITIONS
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2. HP’s $11.1 billion acquisition of Autonomy was one of the
biggest tech acquisitions in history. What actually stole the
headlines is not the news of acquisition or the money involved,
but HP’s decision a year later to write down $9 billion of its
$11.1 billion acquisition. One might wonder the reason behind
such a crucial decision.

3. Well, as alarming as it may sound, HP alleged that Autonomy
forged its financial statements. The company accused “some
former members of Autonomy’s management team” of using
“accounting improprieties, misrepresentations and disclosure
failures to inflate the underlying financial metrics of the
company.”

4. What went wrong and where; a question that pondered every
individual in the investment and technology arena. Inadequate
due diligence is the reason behind such a crisis. Due diligence is
the key to a successful acquisition, that gives you complete
information about the company you plan to acquire.

5. Due diligence is of utmost importance in any Mergers &
Acquisition process, regardless of the size or structure of the
company. A mere glance at the financial sheets or company
records, won’t do justice to the due diligence process.
Developing and implementing a vigorous due diligence process
involves wide-ranging activities.

6. The case of HP is not a rare one; there are numerous other
companies that have become the scapegoats of incomplete or
wrong due diligence process. A thorough examination is all that
it takes to avoid any nasty surprise once you have signed the
agreement.

7. While majority of the companies approach due diligence teams,
in search for ‘red flags’, the process shouldn’t be limited to the
same. Your checklist must include a detailed analysis of the
financial, cultural, legal, and administrative background of the
target company. This will help the management in predicting the
success or failure of an acquisition before they proceed further.

8. TYPES OF DUE DILIGENCE
• Financial DD
Focuses on verifying the financial information provided and to
assess the underlying performance of the business in terms of
earnings, assets, liabilities, cash flow, debt, management etc.
• Commercial DD
Aims at understanding the market through review of market
conditions, sector specific legislation, competitor analysis,
product or service assessment or any other commercial aspects
the user wishes to investigate.

9. • Tax DD
Assessment of tax impact arising from ‘change in control’,
assessment of historical tax exposures, identifying tax saving
opportunities, assessment of current tax position, assessment
of various modes of tax neutral deal structuring
• Human Resources DD
Focuses on the impact of human capital by identifying the
qualifications, technical ability and working initiative of the
target firm’s senior management personnel and key staff.

10. • Operational DD
Consideration of non-financial (operational) matters of an
investment decision, which may include assessment of systems
and processes, review of the incumbent management team,
staffing levels and other HR activities, or insurance
arrangements and risk assessment.
• Legal DD
Investigation of any legal risk associated with the rights and
obligations of the investment decision. Issues may typically
involve property ownership, intellectual property and
employment disputes.

11. • Environmental DD
Typically concerns compliance issues with environmental
legislation, but recent trends for ethical and responsible
business dealings have lead to a sharper focus on ‘green’
issues.
• Administrative DD
Involves verifying admin-related items such as facilities,
occupancy rate, number of workstations, etc. The idea is to
verify the various facilities owned or occupied and determine
whether all operational costs are captured in the financials.

12. • Asset DD
Includes a detailed schedule of fixed assets and their locations,
all lease agreements for equipment, a schedule of sales and
purchases of major capital equipment during the last three to
five years, real estate deeds, mortgages, title policies, and use
permits.
• Intellectual Property DD
Schedule of patents and patent applications, schedule of
copyrights, trademarks and brand names, pending patents
clearance documents, any pending claims case by or against
the company in regard to violation of intellectual property.

13. • Customer DD
Examination and analysis of the top customers, service
agreements and corresponding insurance coverage, current
credit policies, customer satisfaction score and related reports
from the past three years.
• An experienced due diligence team will help you recognize
possible risks and potential opportunities and also ensures that
not a single factor has been overlooked.

14. CONTACT US
HLB HAMT
Level 18, City Tower-2,​
Sheikh Zayed Road​
PO Box 32665​
Dubai – United Arab Emirates.
Tel: +971 4 327 7775
E-mail: dubai@hlbhamt.com
www.hlbhamt.com