Autonomy’s takeover by Hewlett-Packard is likely to make a dollar billionaire out of its chief executive Mike Lynch, but deprive the British software sector of one of its richest assets.
For many, Mr Lynch and Autonomy have come to symbolise all that is good and bad about the UK technology industry. The Cambridge graduate with a PhD in mathematical computing co-founded Autonomy in 1996 and built it into a software giant that along with its Cambridge counterpart ARM Holdings has become one of the few British technologies to have gained a truly international customer base.
The company quickly used its core Idol product to create an enterprise “meaning-based” search business that helps governments and companies around the world make sense of unstructured information such as e-mails and videos.
As a succession of other UK start-ups sold out to big multinationals, Autonomy was held up as a rare example of a successful and international independent British technology group. Mr Lynch was a vocal champion of the need to build more British technology heavyweights that could challenge their bigger US rivals.
Through a combination of rapid organic growth and a steady stream of acquisitions, Autonomy’s revenues have grown from $96m in 2005 to $870m last year. One of a number of technology companies located in Cambridge’s so-called Silicon Fen cluster, it is now the UK’s largest software group by market capitalisation.
Analysts at Jefferies expect sales to continue their double-digit growth for the foreseeable future, with a compound annual growth rate of 16 per cent between 2010 and 2013, with margins in excess of 40 per cent thanks to its pure software model. The company now derives a large chunk of its revenue from the US.
But even as British investors and their more tech savvy US counterparts championed the stock, a small group of analysts began to question how long the Autonomy growth engine would continue. The love-hate relationship that some investors had with the company led some to dub it a “Marmite stock”.
Rumours of a possible bid for the company have often circulated but in recent years the company indicated it was more focused on making acquisitions than being acquired.
In February 2010, Autonomy raised £500m via a convertible bond issue which, together with its cash balance, gave the group a war chest of nearly $1bn. Mr Lynch said the group was eyeing a deal that could come by the autumn of 2010. The shares wobbled when a deal failed to materialise last year and the group gave a cautious outlook.
In May this year, Autonomy announced that it would pay $380m to buy a number of digital business units from Iron Mountain, a US information storage company. While the acquisition was not the big-ticket deal that many had hoped for, recent strong results have gone some way to soothing investor concerns.
David Cameron, British prime minister, has looked to champion the technology sector as a source of growth in a sluggish UK economy through initiatives such as East London Tech City. At a time when smaller peers such as Micro Focus and Misys have also been involved in takeover talks, analysts suggest a takeover of Autonomy would leave a very big hole in Britain’s technology sector.
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