Wednesday, October 20, 2010

Autonomy to announce large acquisition, Webtrends and Open Text among rumored targets

Autonomy Corp., remains on track to announce an acquisition this autumn, according to its CEO Michael Lynch. The comments Lynch made came unprompted during the company’s 19 October Q3 2010 earnings call.

The CEO said: “I’d just like to talk a little bit about M&A, although obviously there are no guarantees until the ink is drying, Autonomy is still very much on track to announce the acquisition other than it’s being talking about in line with its original timescale of the autumn." 

Open Text, the listed, Canadian ECM solutions company with a market capitalization of $2.6 billion, has most frequently been flagged as a potential target for Autonomy. 

Webtrends, a private equity owned Portland, Oregon-based web analytics and solutions provider was also recently named as a target. Webtrends was featured in the Portland Business Journal in late 2007 as potentially being valued at $1billion.

An acquisition would not take the market by surprise, given that Lynch stated that the GBP 500 million bond offering it announced at the beginning of the year “will enhance our ability to engage with potential acquisition targets and take advantage of opportunities as they arise later in the year.” 

In yesterday’s earnings call Lynch went on to outline the kind of acquisitions Autonomy engages in which, he said, is unlikely to include a very “left-of-field area.” “We tend to like to run the playbook that we have used before and has worked so well for us. Now, consequently, these acquisitions tend to be accretive in the short term, the reason being that we will take normally an organization which is not performing at the top end of the market or not be the number one.”

“We will take that and replace the fundamental technology with IDOL, thus servicing a new customer base. That means that that product – a company tends to move from one that’s having to customize everything for customers – an impure model – to a pure model, and that is what changes the margin construction. And you can see the history of those deals that we’ve done in the past.” 

“Now, whilst that might be the mechanism, the important thing to say is that these are done for strategic reasons. So with Verity we created the de facto standard in the market which has been so good for the company since 2005. With Interwoven we produced the chaining between law firms and corporate clients which has driven our leadership in eDiscovery.”

“And in ZANTAZ we’ve owned the infrastructure inside large corporates, which again is an example of us investing in something which means that we have long-term ownership of our customer base; very much what the strategy is about. So when you come to see the work that we have been doing in this area, it is important to understand it in the context of this playbook.”

While the CEO is right about their track record with acquisition, it is virtually no guarantee that the company can take on such complex buyout.  The company needs to make a sizeable acquisition to keep growing. With massive consolidation wave in the enterprise content management now being largely over, Open Text and Autonomy are the only remaining takeover candidates. Autonomy's likely merger with Open Text would be largest by deal size to date and could create significant post-merger integration challenges for the company. Webtrends could be as significant and perhaps more complelemtary than Open Text.

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