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

Dave Kellogg

— 1 min read
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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.

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