Whether two small local businesses are merging or it’s an international, multi-billion dollar deal, mergers require an enormous amount of research and detail to ensure a smooth, legal transition. When Hewlett-Packard purchased the UK’s Autonomy Corp. software business in 2011, the two organizations had no intention to be in court seven years later.
HP has filed a $5 billion civil suit, claiming fraud by Autonomy. The suit is largely about misrepresenting value. Autonomy listed their company at the time of sale as $10.3 billion, while HP valued it at $8.8 billion – a full $1.5 billion less – one year later. Both sides blame the other. HP alleges fraud and Autonomy alleges that poor management by HP diminished the brand’s value. International law, different accounting methods and character analysis are just a few of the arguments taking place in federal court.
An acquisition has risk from many angles
Fraud is a worst case scenario for any acquiring business, but there are many issues that separate a successful merger from a disastrous one. The risks involved in running a single business double with a merger. And then there are the challenges that come by combining forces.
Drafting an agreement that protects
Legal guidance, consultation and analysis will not only offer protection against fraud, but it can help protect the new owners and employees over time. The language in an agreement isn’t just about a purchase and sale, but also includes indemnity clauses that set a course of action for potential liabilities, whether that means managing the debt of the acquired company or how to finance legal charges from pre-acquisition matters.
A well-written contract is one of the most powerful tools for any business. There is so much more to a merger than the acquisition of a new brand, and much of it takes time to surface. The H-P vs. Autonomy case it still unfolding seven years later in an ugly scene that costs both sides time, money and their reputations.