Just a quick post to share the widely published rumors that HP is in discussions with Autonomy over an acquisition estimated to be about $10B.
- TechCrunch: HP to Buy Enterprise Software Company Autonomy for $10B
- Reuters: HP Nears $10B Autonomy Buy
- AllThingsD: HP Reportedly Close To $10B Buyout of Autonomy
- Reuters: Round-Up Story with Reactions
Some quick thoughts on this:
- It’s a great deal for Autonomy, price-wise. Today’s market cap was £3.5B or $5.8B so it seems to represent a 71% premium to the market, if I’m doing the math correctly. 2Q11 revenues were $256M, so call it a $1B run-rate, which means the deal is proposed at 10x run-rate revenues. That’s expensive for a company growing revenue at 16% year/year, but then again, Autonomy is very profitable with 45% operating margins, and they say that 62% of IDOL revenues are now done on a recurring model. (Note: recent Iron Mountain deal included in these numbers on a stub period basis only.)
- Ever since Autonomy bought Verity, I have viewed them as a finance company dressed in (meaning-based) technology company clothing. This seems a happy ending for that finance company.
- Autonomy the finance company may have been running out of companies to buy on their buy-cheap and crank-the-recurring revenues model that worked so well for Verity, Zantaz, and probably the Interwoven acquisitions. (It takes a pretty specific profile to make that strategy work: big installed base, recurring revenue model, and a cheap stock price.) To me, Autonomy seemed all dressed up with nowhere to go. They sold about $800M worth of bonds in February, 2010, presumably to make a big acquisition and then did little or nothing until paying $380M for Iron Mountain’s digital assets in March, 2011.
- HP wants to get more into the software business and, given the massive consolidation of the past decade, there aren’t that many $1B companies to buy. At some point, they will probably acquire a mega-vendor (e.g., SAP), but the Autonomy deal might be a nice warm-up to that.
- Autonomy stock was nevertheless off 8% on the day.