Thursday, 22 January 2009

Autonomy to interweave Interwoven

(By Richard Holway) First, let me declare an interest. I’m both a long term shareholder in Autonomy and I’d like to count Mike Lynch as a friend. Indeed, we had dinner together last night-although Mike both arrived late and seemed rather preoccupied with his Blackberry! At 7.00am I checked in for the RNS announcements and discovered the reason for his evasive answers to my questions.

Autonomy is proposing to acquire Nasdaq-listed content management software firm, Interwoven. Autonomy will pay $775m cash, a 37% premium, part funded by a share placing and a new credit facility. Interwoven had signalled earlier this month it is on track to generate $260m in revenues for 2008, 15% up on 2007. Autonomy reported just over $500m in '08 revenues. So from that viewpoint it’s a pretty big acquisition and might fall foul of Holway’s dreaded “Acquisition Indigestion”. Conversely, Autonomy is valued at £2.3b – over four-times what it is paying for Interwoven.

I have to say that my first reactions to this are entirely positive. Content management fits well with Autonomy’s current offerings. Web Content management and Search are obvious bed fellows. Secondly, Interwoven’s strongest sector is Legal – again a great fit with Autonomy which has made its reputation in compliance and disclosure. Thirdly, the price paid is quite reasonable and the funding requirements (mainly using Autonomy’s and Interwoven’s own cash) is pretty conservative. Fourthly, the deal is earning enhancing almost immediately with an expected earnings accretion of approximately 20% in 2009, assuming a full year of ownership.

I guess my main reason is less objective. After four decades of reporting US software players buying the Brits, in Autonomy we have a rare example the other way around. Indeed, Autonomy is now the premier example of a BRITISH software company. I’m also a great fan of Mike Lynch. He clearly has the management bandwidth to handle this – although I’m also pleased to see that in recent analyst briefings he’s been pushing forward other members of the Autonomy team and, indeed, talking succession planning.

The markets clearly liked the deal too with Autonomy shares up another 5%+ in early trading – adding to the near 6% rise yesterday on the results announcement.

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