Category Archives: HP

Will Oracle or IBM Start a Bidding War with HP over Autonomy?

Posted on August 22, 2011 | 3 comments

I’ve heard a fair bit of discussion about whether IBM or Oracle is likely to step in and start a bidding war for Autonomy which HP last week announced that it will buy for $42.21 per share, or $10.2B, as discussed last week in Kellblog when the rumors first surfaced.

My opinion — and this is an educated guess / speculation only — is that the answer is no.  Here’s why:

  • I’m told by those who’ve analyzed the deal that it is a very target-friendly deal on contractual terms as well as price.  HP wants this deal to happen.
  • I’m also told that HP is moving through the acquisition process with great speed.  HP wants this deal to happen.
  • I’m also told that HP is messaging that the deal is not just about buying into unstructured data but also about getting Autonomy’s CIO-level relationships that are supposedly superior to HP’s.  While I’m not sure that Autonomy has great CIO relationships (think:  “let Jimmy here tell you how much you’re going to pay next year”), that’s not the point.  The point is if that HP believes it, the deal becomes about protecting the core as much as about expanding into software which again would suggest that HP wants this deal to happen.
  • Because HP wants the deal to happen, I suspect the deal was not shopped and the first Oracle or IBM heard about it was the announcement.  If that’s true, then they didn’t get a chance to bid (and/or not bid) before the deal was announced.  But if that’s true, HP had to offer a market-clearing price such that Autonomy could accept the deal without shopping it.  That’s how you get a 70% premium to the market.
  • Oracle can move quickly.  The biggest reason that I think Oracle will not start a bidding war is that they haven’t already.
  • I’m told that Oracle investor relations is making comments along the lines of  [not verbatim] “if we were worried about Autonomy as a competitor, we couldn’t think of a better place for it to land than HP.”  And my guess is they believe that.   I suspect Oracle is more bummed about Clearwell slipping away (a leading pure-play e-discovery solution) than it is about a mini-me of document-oriented solutions (i.e., Autonomy) with a mere $250M/quarter spanning numerous categories including enterprise search, web content management, e-discovery, and digital archiving with over 40 products in a product line built through inorganic growth.
  • If either Oracle or IBM cared about a document-oriented, unstructured data platform, they could acquire other companies (e.g., MarkLogic!?)  for a lot less than $10B.  If they care about enterprise search, they could buy one of many small vendors in that space or put (more) wood behind Lucene and Solr.  They already have offerings in web content management and e-discovery.  The key point is that if you de-construct Autonomy, Oracle and IBM either already have or could easily buy each of the pieces.  Buying them all-in-one at discount?  Maybe.  At $10B for the starting bid?  Methinks not.

I’ve been wrong before and I’ll be wrong again, but I just have a lot of trouble seeing a bidding war on this deal.  It reminds me of the Sun / MySQL deal where a hardware company paid a hefty multiple for a deal they decided is absolutely strategic to their future.   You usually don’t get bidding wars on those because the purchaser precludes them by offering a market-clearing price.  And $10B for Autonomy strikes me as a market-clearing price.

3 Comments

Posted in HP, IBM, Oracle

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

Posted on August 18, 2011 | 7 comments

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.
  • Autonomy stock was nevertheless off 8% on the day.

7 Comments

Posted in HP

Leo’s Pawn to King Four: HP To Acquire Vertica (Updated)

Posted on February 14, 2011 | 9 comments

HP today announced that they will acquire data warehouse and analytics platform provider Vertica of Billerica, MA.  Cowen and Company estimated the price at 5x revenues, estimating that Vertica did $40M in 2010 revenues, suggesting a valuation of $200M which I find low.  Frankly, I wouldn’t be surprised if it were twice that given the hotness of the space, the gradual opening of the IPO window, and the opportunity cost for Vertica of forgoing independent growth. See the bottom of the post for more math fun and guessing.

[Update:  I have now heard valuation guestimates including “over $300M” and “north of $500M” so at this point I’m starting to get confused — rumors around valuation usually converge, not diverge.  Yesterday, the 451 Group said they believed the price was $275M up-front with up to a $100M earn-out that can be earned over time through performance.  This makes sense  to me both in terms of valuation range and in terms of the confusion about valuation.]

This move follows on EMC’s July acquistion of Greenplum, rumored to be in the $400M range.

The move marks Leo Apotheker’s first big move as CEO of HP and — finally — gets HP into the data warehousing and analytics market in a real way.  (Let’s not talk about NeoView which, for whatever reason, was never taken seriously in the market.)

Many folks, including me, thought HP missed their big chance to enter the DBMS and data warehousing markets by failing to scoop up Sybase back in May, which SAP did for $5.8B.

The move is probably a change in direction for HP’s software head, Bill Veghte, who joined HP in May from Microsoft, where he had spent his entire career after graduating from Harvard, and where he was most recently responsible for shipping Windows 7.  Based on his background, I suspect that Veghte was going to head into data center, security, and infrastructure (a la the $1.5B acquisition of ArcSight in September).  Perhaps Leo’s moves into data warehousing, analytics and presumably one day — enterprise applications — will complement, rather than replace, that more infrastructure-oriented strategy.

Yesterday, The Mercury News ran an interesting piece on HP’s new non-executive chairman of the board, Ray Lane, who was appointed at the same time as Apotheker, and who has already taken major steps to reshape HP’s board.  Lane was instrumental in steering Oracle out of a financial crisis in the early 1990s and driving their growth throughout that decade.

I suspect this is HP’s opening move.  There will be many more to come.

Guessing Vertica’s Size:  $25 to $35M-ish
LinkedIn says Vertica has 96 employees.  For West Coast companies this figure is usually quite accurate; let’s assume it is for Vertica.  “Normal” productivity of $250K to $300K/head implies revenues of $24M to $33M.  LinkedIn says Vertica has 36 employees in sales.  If one of three of those are quota carriers, then you have 12 quota-carriers at “normal” productivity of $2M implying $24M.  Alternatively, if you assume 15% of a enterprise software company’s headcount is quota-carrying that implies 15 quota carriers at $2M each yielding $30M.  All of this is very back-of-the-envelop and breaks under high-growth rates.

Nevertheless, I’ll guess they are $25 to $35M in revenues, suggesting that a $200M exit would be 6-8x revenues and a $375M exit would be 11-15x, basically validating the possibility of $200M+ up-front price with a performance-based earn-out.

9 Comments

Posted in HP, Strategy

Leo's Pawn to King Four: HP To Acquire Vertica (Updated)

Posted on February 14, 2011 | 9 comments

HP today announced that they will acquire data warehouse and analytics platform provider Vertica of Billerica, MA.  Cowen and Company estimated the price at 5x revenues, estimating that Vertica did $40M in 2010 revenues, suggesting a valuation of $200M which I find low.  Frankly, I wouldn’t be surprised if it were twice that given the hotness of the space, the gradual opening of the IPO window, and the opportunity cost for Vertica of forgoing independent growth. See the bottom of the post for more math fun and guessing.
[Update:  I have now heard valuation guestimates including “over $300M” and “north of $500M” so at this point I’m starting to get confused — rumors around valuation usually converge, not diverge.  Yesterday, the 451 Group said they believed the price was $275M up-front with up to a $100M earn-out that can be earned over time through performance.  This makes sense  to me both in terms of valuation range and in terms of the confusion about valuation.]
This move follows on EMC’s July acquistion of Greenplum, rumored to be in the $400M range.
The move marks Leo Apotheker’s first big move as CEO of HP and — finally — gets HP into the data warehousing and analytics market in a real way.  (Let’s not talk about NeoView which, for whatever reason, was never taken seriously in the market.)
Many folks, including me, thought HP missed their big chance to enter the DBMS and data warehousing markets by failing to scoop up Sybase back in May, which SAP did for $5.8B.
The move is probably a change in direction for HP’s software head, Bill Veghte, who joined HP in May from Microsoft, where he had spent his entire career after graduating from Harvard, and where he was most recently responsible for shipping Windows 7.  Based on his background, I suspect that Veghte was going to head into data center, security, and infrastructure (a la the $1.5B acquisition of ArcSight in September).  Perhaps Leo’s moves into data warehousing, analytics and presumably one day — enterprise applications — will complement, rather than replace, that more infrastructure-oriented strategy.
Yesterday, The Mercury News ran an interesting piece on HP’s new non-executive chairman of the board, Ray Lane, who was appointed at the same time as Apotheker, and who has already taken major steps to reshape HP’s board.  Lane was instrumental in steering Oracle out of a financial crisis in the early 1990s and driving their growth throughout that decade.
I suspect this is HP’s opening move.  There will be many more to come.
Guessing Vertica’s Size:  $25 to $35M-ish
LinkedIn says Vertica has 96 employees.  For West Coast companies this figure is usually quite accurate; let’s assume it is for Vertica.  “Normal” productivity of $250K to $300K/head implies revenues of $24M to $33M.  LinkedIn says Vertica has 36 employees in sales.  If one of three of those are quota carriers, then you have 12 quota-carriers at “normal” productivity of $2M implying $24M.  Alternatively, if you assume 15% of a enterprise software company’s headcount is quota-carrying that implies 15 quota carriers at $2M each yielding $30M.  All of this is very back-of-the-envelop and breaks under high-growth rates.
Nevertheless, I’ll guess they are $25 to $35M in revenues, suggesting that a $200M exit would be 6-8x revenues and a $375M exit would be 11-15x, basically validating the possibility of $200M+ up-front price with a performance-based earn-out.

9 Comments

Posted in HP, Strategy