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Lynch’s mob

24 May 2012 By Chris Hughes

Mike Lynch should try to buy Autonomy back. The software entrepreneur sealed a superb deal for shareholders when he sold the Cambridge-based firm to U.S. tech giant Hewlett Packard Co in October. But the marriage isn’t happy. Lynch was meant to be leading HP’s efforts to scale up the business. Instead, he’s leaving to do acquisitions of his own. It would make sense if Autonomy was on his list of targets.

Last summer, HP may have looked like a suitable parent for Autonomy. Lynch himself had taken the business from nothing to annualised revenue of $1 billion in the second quarter of 2011. Scalability wasn’t in doubt. HP’s new chief executive, Léo Apotheker, was a software guy who wanted to move away from the challenged core business of computer hardware. The 64 percent premium on offer showed a commitment to turbo-charging Autonomy’s performance.

But the new family has turned out rather dysfunctional. HP shareholders blew a big raspberry at the overpriced deal. The board replaced Apotheker. Autonomy staff left too. That was to be expected given the cash deal had provided a decent exit on their stock. But HP’s big-company bureaucracy and “hardware culture” was another factor, according to a person familiar with the situation.

Meg Whitman, Apotheker’s successor, has backed the strategic logic of buying Autonomy. But she will need to work very hard now to bring harmony, let alone satisfactory returns on the investment. Licensing revenue has proved very disappointing lately, HP says. Mass defections by Autonomy staff would see the debilitating loss of institutional know-how, albeit with the clarity of HP’s culture becoming dominant.

The best thing for all concerned may be for HP to dispose of the business. HP’s stock has already taken a hit. The cultural mismatch may never be resolved. Big gaps are appearing in Autonomy’s development expertise. HP seems to have other priorities.

Lynch would be the obvious buyer, probably in partnership with private equity. It would be a cheeky move; HP would have to swallow hard. But Autonomy may be better off on its own.


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