HP Rumored To Be Buying UK’s Autonomy for $10.2B

Dave Kellogg

15 years ago

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.

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.