I find the story of Dragon Systems hilarious and horrifying so I’m never going to miss an opportunity to tell you about it and one occurred today. The story, quickly, is (1) Dragon Systems, a closely held speech-recognition company, hired Goldman to advise it on a merger with Lernout & Hauspie, (2) Goldman assigned Dragon an extremely JV team of bankers, (3) Dragon sold itself to L&H in June 2000 in an all-stock deal, (4) L&H soon turned out to be a massive fraud, and (5) L&H filed for bankruptcy in November 2000 and Dragon’s shareholders lost $300 million. Dragon sued, Goldman won a trial in January, and today they won some more, for reasons I’m not clear on. That is, I’m not sure why they had to win again – the judge issued an opinion finding in favor of Goldman, even though a jury did the same thing in January. Also it’s not much of a stirring win: Read more »
Lernout & Hauspie
Dragon Systems Shareholders Can’t See The Bright Side In Well-Managed M&A Transaction That Wiped Out Their Life’s SavingsBy Matt Levine
This Dragon Systems lawsuit that’s bopping along in a Boston court gives me the absolute heebie-jeebies; it is the investment banking version of the dream where you show up to school and there’s a test that you forgot to study for. One day the youngish team of Goldman bankers is patting themselves on the back for guiding their client, family-owned speech-recognition software maker Dragon Systems, to a $580 million sale to a Belgian acquirer. The next:
the 2000 all-stock deal was quickly followed by an accounting scandal that led to the collapse of suitor Lernout & Hauspie Speech Products NV. Goldman Sachs, which advised Dragon on the deal, called witnesses to counter allegations by Dragon founders Jim and Janet Baker that its negligence cost them their life’s work. … Dragon’s founders, who are seeking hundreds of millions of dollars in damages, claim that four Goldman Sachs bankers assigned to the transaction committed gross negligence by failing to pursue questions about Belgium-based Lernout & Hauspie’s finances that should have led them to avoid the deal.
Oops! I really do feel for the bankers here. It’s Friday afternoon and nobody’s reading so I feel comfortable making this confession: when I was a banker I once underwrote some convertible bonds for a company that we’ll call Company X, and later when I was a blogger Company X went bankrupt and those bonds are … those bonds are not doing so hot, these days. That keeps me up at night, sometimes.1 But in my defense it took like a year! And Company X wasn’t a giant fraud, either, it just turned out to suck at making money. The Dragon team doesn’t have those excuses: Read more »