SGH, page-76

"When they bought the PSD they blew the balance sheet risk to bits becaise......
They hadn't built up cash reserves through their growth period, they borrowed probably as much as they could and CR for the rest, the PSD wasn't fundamentally proven with years of profitable history, SGH historical CF/profits were not big enough for servicing the new debt . These and other reasons turned this company into speculative class because what they were actually doing was betting the whole house, no room for failure an all or nothing bet and to my mind that makes it very speculative.
Other past acquisitions they made didn't create such risk in the balance sheet ."

That's an excellent analysis of the situation in Jun 2015. You should write the book we're all waiting for on this one.

There were also big "technical" mistakes they made at the time.
With lawyers and not accountants making the calls, they did lots of DD on the asset values they were buying (which even with their team of lawyers looking at files etc they got wrong anyway), but seemed unconcerned at the Quindell cash flow.

In the pre-purchase information memorandum they acknowledged that Quindell's WIP figures were too aggressive, but then didn't seem to put 2 + 2 together to conclude that the forecast earnings were consequently also way too aggressive. And so on.

Having said that - it turned out a lot worse that I expected - PSD was just a black hole for cash, and management seemed to sit there for a long time not knowing what to do.