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.
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Dave, what happens when Autonomy can no longer operate as a finance company and must instead deliver real growth (vs. acquired growth)? With that 10x multiple, HP is on the hook big time and will need much more than 16% growth.
Perhaps more importantly, how will HP get Autonomy to suddenly be customer driven and integrated with the EDS teams? You know ISYS focuses heavily on strong partner relationships, so we just don’t see good things ahead in terms of cultural integration of these two firms. Good for ISYS, bad for HP customers.
Mewonders the same thing — see the comment about running out of companies to buy that [1] fit their financial model and [2] move the needles. Mealsowonders if one day Mike Lynch doesn’t end up running HP. You heard it first here!
Now THAT is an interesting take. And here I thought he had already set up a calendar appointment alerting him to the expiration of his earn-out obligations.
Here’s another interesting thing to consider — we are several years removed from the MSFT/FAST deal, and I’m not certain anyone can assign a definite grade to that deal. So, it’s likely to be several years before we know the true impact. Consider that HP spinning off the PC business only NOW gives that HP/Compaq deal a firm “F”.
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