Last updated: February 11, 2010 2:31 am

Autonomy secures $1bn warchest for deals

Autonomy shareholders have given the UK’s largest software company by market value the green light to make a $1bn acquisition in the US after backing a £500m ($758m) convertible bond issue.

The search software group raised the funds for the five-year issue, which will offer a semi-annual coupon of 3.25 per cent, in several hours in London on Wednesday. Combined with its gross cash of $242.5m, it gives Autonomy a warchest of more than $1bn. Shares in the group closed down 88p at £15.22.

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Analysts said companies such as Canada’s Open Text, MicroStrategy and Fair Isaac were mentioned as potential deals, although they acknowledged that there had been little speculation surrounding previous Autonomy targets such as Interwoven a year ago and Zantaz in 2007.

If a deal arrives, it is likely to prolong the debate about the quality of Autonomy’s earnings. While most of the City is supportive, the stock has been attacked by a small but vocal minority of analysts who have argued its regular deals obscure its underlying performance.

While deals have formed a vital part of Autonomy’s growth strategy, the group recorded organic growth of 16 per cent in the year to December 31.

Analysts did not discount the possibility of a deal far in excess of $1bn. “The convertible bond issue, combined with an equity raising later in the year, suggests a $2bn deal is within range,” said Roger Phillips, an analyst at Evolution Securities.

Mike Lynch, chief executive, played down the prospect of an early deal. “By the second half of the year there could be some opportunities,” he told the Financial Times. “But there’s nothing imminent, it’s just the start of the process.”

The fundraising comes as Autonomy’s share price rose to a nine-year high on the back of upbeat full-year results, which indicated that business confidence was improving.

“In our view Autonomy has elected to trade-off rating for scale of earnings,” said David Toms, an analyst at Numis Securities, who pointed out that Autonomy’s acquisition track record had been good.

On Tuesday Autonomy announced a $55m deal for US group MicroLink, a reseller of its software which targets the US state and federal government.

Morgan Stanley was global co-ordinator and sole bookrunner for the offering with UBS co-bookrunner.

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