Cash carousel spun between Filetek and Autonomy, Lynch employee tells court A former Filetek sales and marketing man has told London's High Court that the firm received money from Autonomy before paying it back as part of reciprocal deals. Gary Szukalski alleged, in response to questions from Hewlett Packard Enterprise barrister Conall Patton, that software house Filetek engaged in round-robin sales …
Did he basically point the finger at his current boss (Lynch) for this?
I'm thinking it's more pointed at Egan, and/or financial controls at Autonomy. Having a telecomms background, I've always been wary of both sales and swap deals. Especially given sales are often paid on revenue, not margin.
Issue I guess would be looking at the whole deal structure and if that was positioned internally to hide any revenue padding, or if the value of the swap elements was properly valued. I used to get that where sales would want to swap international capacity for domestic that added no value to the network or business. But in a 'sales driven' organisation, it can be hard to argue that point.
I believe his (Lynch's) VC funds Darktrace. And yes, it's a refreshingly honest stance to take from the Filetek bod but it does seem like career suicide. Be interesting to see how long he stays around after this.
If you look at the Darktrace employees list it's pretty much a lift and shift from the old Autonomy workforce.
AC as I worked at Autonomy early 2000s and sadly everything that's been suggested they were doing pre acquisition by HP in this trial was being done then too...
Lets assume the carousel spun between Filetek and Autonomy is real and deliberate, given it's small size HP really need show this was the norm ie. it accounted for over 60% of Autonomy's business. Currently, I don't see how one possible carousel of this size can result in the overvaluation HP claim.
Autonomy had loads of cash on hand, and a positive cash-flow. As well as good profits at a healthy margin. They had a billion in the bank, this is just a rounding error.
Wake me up If HP can prove it's systematic. Otherwise this is a huge waste of time.
Autonomy bought a lot of companies, which accelerated their growth and may have hidden a lack of a sustainable business. Perhaps HP's lawyers should concentrate on poor management decision making on over-valued purchases destroying the value of the company.
Oh and Autonomy management might have done that too...
I'm here all week.
If you bought a software/SaaS company using a value-to-sales multiple based on the long term development in the company's markets and working backwards using probability-weighted scenarios about the potential size of market and the current market share as well as the level of return of capital you can earn, and you then found that the past growth rates were not real, then that would account for an over evaluation. Software/SaaS sales are massively sensitive in valuations, because they can change the growth rate graphs, with huge impact. It's not the $ amounts that matter, its' the role these $ play in creating the story "we are a fast growing company in a huge market with a small share". The valuation is a multiple of the sales $ over time, and it can be a very very big multiple, because you are using them to justify the value of future growth. Think graphs where one line is pointing up to the top right and one is a flat line. The missing value is that slice of pizza (or pick your favourite food substance) shape.
Yougottalaugh,
Only if you're a lunatic. Turnover is quite volatile. So while I'm happy to go with the back of a fag packet, this company turns over £1 billion now, and is in a fast-growth area so will have £50 turnover in ten years time - you can't say this company turns over £1.01bn and so will be knocking out sales of £50.5bn. I don't care how much you claim you have a "model" - any prediction like that is by nature incredibly speculative - and to try and pretend any kind of precision is ludicrous bullshit.
How it would have affected the revenue model is even harder to speculate on, because we don't know how much of this trade was booked as profit.
So the carousel was for between 8 and 11 million dollars. I still have to see where HP think the BILLIONS in overvaluation were lost.
Everything I've heard so far makes me think that, although Autonomy were probably not a nice business to work for, they were able to CONVINCE HP that they were worth buying for the price HP paid.
When you have Execs that don't even read the (limited) due diligence, serves them right.
This strikes me more about Egan padding his bonuses than Autonomy adding billions of net value.
This stinks, and always has, of bitterness on the part of HPE for not doing their homework and rather than face the inevitable backlash cause by admitting it, are hell bent on trying to find the scapegoat outside of HPE.
I've said since the story broke, they failied due diligence and the fault lies squarly with them.
On a related note HPE, I have a bridge...
This is a simple batter sale not a carousel. A carousel requires the goods to pass all the way round the loop (ie back to the original seller). In this case the two companies have battered to sell each other their product and not bothered to negotiate discounts potentially just to boost the sales bonus. There is no malpractice unless this was misrepresented in the accounts or the software battered was then simply discarded. I suspect that we are simply going to go back to the auditors being aware of the transaction and approved the accounts which means nothing improper in relation to the sale unless HPE want to sue the auditors and presumably, when this court action crashes and burns, their appetite for another court action will be somewhat reduced.
HPE have to prove that they were lied to or something illegal happened. They really don't seem to be doing that.
Not necessarily fishy.
You have something I want. I have something you want. We jointly agree that both are broadly equivalent in price, and that the price is $X. I arrange to buy your product today and pay you $X, provide you agree to buy my product and pay me $X in, say, a months time.
It's only fishy if either (or both) of us decides we don't actually want or need the others product and quietly can it. That would be fishy.
However, we could always claim that we thought we needed it, we purchased it, but then our business changed and we no longer needed it. Proving that was the intent will be challenging.
Did Autonomy strike out?
If IDOL was battered, then all the negative comments about it in the Reg forums are just adding insult to injury.
I hope this doesn't lead anyone to think Autonomy and Filetek invented some new battery technology. We know what Reg readers think of those stories.
I think that another potential reason for a "let's not sweat the shillings" full-list-price barter [bad joke alert: why did the musician go to New Zealand? A: to play in an Auckestra] transaction process would be to establish a high cash value for the product, a ballpark figure. Which cup is the pea under? You can never win, but when you see somebody win, you might be inclined to join in. The difference is that the product (presumably) works, so the process would not be a fraud, it would be Marketing. Why did the customer pay 800 quid for pantaloons? Because he saw a well-dressed man do exactly that, and because the sales rep made him feel appreciated. Regardless of whether an equal or better pantaloon was on sale down the road for 8 quid. Fair game, in the society we have. I am not saying it is a Good Thing.
That makes three reasons for this sort of activity: to inflate bonuses, to make the company look more attractive to a potential buyer, and to make the product itself more attractive to a potential licensee. Do I hear four?
Even the most rudimentary sort of diligence on the part of a potential buyer should reveal this, and allow them to temper their bid accordingly. IANAL. Of course, this is not a legal opinion!
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