Autonomy to pay $375m for US rival Zantaz

Shares in Autonomy rose 13 per cent on Tuesday after the search software company announced a $375m (£186m) deal to buy Zantaz, a private California-based rival, and said it would beat market estimates for second-quarter profit and revenues.

The Zantaz deal will be Autonomy’s largest since its $500m acquisition of US rival Verity at the end of 2005.

Zantaz, which is partly owned by General Atlantic, the private equity firm, provides e-mail archiving and “e-discovery” services for large corporations, helping them quickly locate documents such as e-mails when required for legal reasons.

The e-discovery market is expanding rapidly, as regulations such as Sarbanes-Oxley and the US federal rules of civil procedure require companies to track information in their archives closely. The federal rules were recently changed to require companies to submit information to courts within 90 days.

Mike Lynch, chief executive of Autonomy, said: “With the federal rules change coming in at the beginning of the year, we could see that archiving would become a big market. Regulatory requests to companies used to happen once in a blue moon, now they are happening daily.”

Last year, Zantaz, whose customers include nine of the world’s top 10 law firms and companies such as JPMorgan, Deutsche Bank, Philip Morris and BAE, had $100m in revenues and broke even.

The company already uses some of Autonomy’s software, so analysts believe the integration of the two businesses should be easy.

Autonomy raised $188.2m by placing 12.7m shares to help pay for the transaction.

In addition, Autonomy said it expected to beat market expectations for revenues and profit in the second quarter. Consensus estimates were for revenues of $68.5m to $73m. The shares closed up 97p at 825p.

FT Comment

● UK acquisitions of US rivals are usually treated sceptically, but Autonomy is one of the few companies with a good record, having made a success of its purchase of much larger US rival Verity. Autonomy can use the same model with Zantaz, inserting its own, more sophisticated and higher-margin products into Zantaz’s strong customer base to lift margins. Beating estimates for the second quarter is a bonus, but not a surprise following a recent flurry of customer wins. Autonomy’s search technology is becoming a de facto standard for companies and though the shares are trading at 47 times 2007 earnings estimates, they are unlikely to have finished climbing.

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