Enterprise search company Autonomy announced it will acquire Verity for approximately US$500 million. 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.
David Mitchell, practice leader for analysts Software@Ovum, called the deal a "necessary move" as it gives the two mid-size companies "the scale to invest in R&D and innovation."
Autonomy CEO Mike Lynch called the deal a "transformational acquisition" and said it will create better products for their combined 16,000 customers. Autonomy’s customers include Astra Zeneca, BBC, British Aerospace, Nokia, Shell and Vodafone.
Verity CEO Anthony Betancourt said the companies’ products are already complementary and that they already share customers.
Autonomy has gained some deep-pocketed rivals in the search market as companies such as Google Inc. and Microsoft Corp. work to expand their search offerings into enterprise-strength tools. Buying Verity increases Autonomy’s scale and diversifies its revenue streams, company executives said.
Founded in 1988, Verity has been consistently profitable for the past five years. In its last fiscal year, the company had revenue of $142.6 million and net income of $7.5 million. Together, Autonomy and Verity would have had revenue of $227 million over the past 12 months, according to Autonomy.
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 tag "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.
Verity is the larger company. 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.
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.
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 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 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.
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.