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November 6, 2005

Autonomy biggest in search after $500m Verity buy

Autonomy Corporation has agreed to pay $500m in cash for Verity. The deal brings together the two biggest enterprise search technology companies in a market seething with activity due to the success of consumer search engines.

By CBR Staff Writer

With combined revenue of $227m in the past year and a joint 16,000-strong customer base, the enlarged Autonomy believes will have the scale to keep up with market demands for search technology for handling rapidly growing volumes of unstructured data, whether in the form of voice, text or video.

The acquisition opens the way for the next competitive battle in the search market. Fast-expanding Oslo, Norway-based vendor Fast Search and Transfer ASA said it had evaluated Verity and found the price far too high.

Fast CEO John Lervik said: Verity has had little to no growth over the past years, and we see little, if any, synergy between their offerings and Autonomy’s.

But Autonomy chief executive Mike Lynch told Computer Business Review the combined company would give Fast a hard time as it had the strength to attack it in its core eCommerce market.

In the past, Autonomy has been withering about Verity’s capabilities, even claiming it could not be regarded as a competitor because it regarded its technology as so primitive compared with its own concept-based searches. The prime motivation for the deal is to get hold of Verity’s customer base.

Verity has struggled to keep up with the pace of development in search technologies and its software license revenue has declined from $108.7m in 2001 to $81.1m in 2005. But this has been masked by a strong growth in its services revenue, build on its large installed base, which rose from $36.3m in 2001 $6.1m in 2005 and Autonomy will aim to capitalize on the strength of Verity’s services.

Verity is the larger company, with revenue of $142.6m in its last financial year against $64.7m for Autonomy. But Verity’s recent modest growth and patchy profitability has left investors disillusioned and Autonomy chose a good moment to strike with a $13.50 per share offer, 30% higher than Verity’s $10.37 closing price before the deal was announced.

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Autonomy launched its bid only the day after it released a strong set of third quarter figures with net income more than doubling to $1.2m on revenue 75.8% higher at $25.5m.

Verity’s strength is at the low end of the market, illustrated by its 15,000-strong customer base to the 1,000 of Autonomy. Verity’s products for the high end of the market will be moved onto Autonomy’s technology.

In the euphemism of the announcement, Verity’s search product will evolve as an integrated component of Autonomy’s Intelligent Data Operating Layer (IDOL) and a product roadmap is to be announced shortly. Merging products will be easier because, as a more recent entrant to the market, Autonomy’s products have been designed to be compatible with market leader Verity’s.

The one consolation for Sunnyvale, California-based Verity, as it watches the bonfire of much of its technologies, is that Verity CEO Anthony Bettencourt will become CEO of the US subsidiary Autonomy Inc.

What the deal opens up for Autonomy to extend its operations into business process management (BPM), which Verity entered in 2004 with its $50m acquisition of e-forms management company Cardiff Software and $8m purchase of Dralasoft, which offers Java-based workflow, orchestration and business activity monitoring (BAM) software.

This gave it the technologies to support the major standards in the forms industry, including paper, XML, Adobe PDF and Microsoft InfoPath. It now offers BPM products with capabilities for forms design, scanning, optical character recognition, forms recognition, validation, verification, process automation and routing.

However, Verity’s last quarterly filing reports decreased revenue of BPM products. Yet Lynch believes that Verity’s BPM sales record has been good though he ruled out an expansion of offerings in this space.

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