British enterprise search and information management company Autonomy has snapped up US content management maven Interwoven, for $775m.
Interwoven is not coming cheap: it is costing Autonomy a 36% premium on Interwoven's average share price in the preceding 30 days. But Interwoven was by no means in trouble: its preliminary figures for its fourth quarter of 2008 anticipate revenue of around $69.5m, which would be up just over 10% on year ago quarterly sales.
Asked about the premium Autonomy's is paying for Interwoven, Autonomy's founder and CEO Dr Mike Lynch told me, "It's doing well -- we don't want to buy things that are broken. Interwoven is growing and profitable, and has quality products and a good customer base." [click continue reading for more on this entry]...
Lynch said discussions with Interwoven with regards the acquisition began six months ago.
Autonomy said the combined entity will have a customer base of over 20,000, giving it scale as well as cross-selling opportunities. Autonomy was particularly attracted by Interwoven's strength in the legal sector -- Autonomy has been making hay with products of its own aimed at compliance with legal and regulatory obligations.
Autonomy said there will be general and administrative redundancies, as well as the potential to reduce duplicated marketing. Since Autonomy is headquartered in Cambridge, England, it won't need to spend as much money as Interwoven has had to shell out on compliance as a company listed on the US stock markets. Autonomy expects to be able to save around $40m per annum in the first year as a result of these 'synergies'.
The acquisition is expected to be earnings enhancing in the first full quarter following completion; while there is expected earnings accretion of approximately 20% in 2009 (assuming completion had happened on January 1, 2009 -- in fact it is expected to complete in the second quarter of 2009, subject to Autonomy and Interwoven shareholder and regulatory approvals and other customary closing conditions).
Lynch told me that while he doesn't consider the $775m price tag a "bargain", he said he believes, "The headline figure may appear a little lower than you might expect, but that's partly because Interwoven has been trading very strongly recently. I wouldn't say it's a bargain but it's a good, fair value."
Autonomy is paying for Interwoven with a mixture of stock and cash. It is placing 21.6 million new shares, or 9.9% of its share capital, with institutional investors. The shares rose today 68p or 6.58 per cent to £11.01 when the news was announced.
The deal is also being funded with a new revolving credit facility with Barclays Bank and from the two companies' cash reserves. Autonomy has said that after the deal closes it will have "at least" $75m cash left in the bank, but Lynch told me the figure is expected to be far higher than that.
So what's the motivation for the deal? For one thing Autonomy is highly cash generative and it makes sense to put that cash to work somehow -- in 2005 it was with the acquisition of Verity for $500m.
But more than that, Autonomy believes that more traditional content management systems are not good at understanding the meaning or context of the content, while Autonomy's IDOL technology is designed to do just that. "We can understand the meaning of content," Lynch told me, "while the CMS [from Interwoven] is good at putting information around the content, like who checked it in and checked it out; as well as put a nice front end on it to make it intuitive to use."
Essentially, Autonomy said Interwoven’s products know what the customer interactions are, and Autonomy’s IDOL will allow them to know what they mean.
Lynch said that Autonomy is fundamentally averse to the idea of a content management system being a repository of information that requires it be copied into that data store.
Instead, he believes the best approach is to manage information 'in place' -- in a more federated kind of data management approach. "Copying it into a repository doubles your storage costs," Lynch told me, "plus a lot of regulations like FRCP [Federal Rules of Civil Procedure in the US] stipulate that it's not good enough for people to decide what is put in that repository: it needs to cover every information asset even if it's not in a repository."
Aside from the regulatory potential, Autonomy said the 'intelligence' of Autonomy’s IDOL technology could be used to extend Interwoven’s Web content capabilities across 100,000 corporate websites, intranets and extranets already powered by Interwoven.
"Through the combination of Interwoven’s Optimost software and IDOL, Interwoven’s customers will be able to optimise multiple forms of customer interactions, including email, chat sessions and the telephone," Autonomy said. "Interwoven’s web solutions, when combined with Autonomy etalk’s industry leading customer interaction software, will marry the call centre and web for comprehensive and coherent customer interaction management."
"The combination of Autonomy’s Digital Safe and Interwoven’s TeamSite automatically allows the archiving of all customer interactions with corporate websites," the firm continued, "thus allowing effective solutions for the raft of recent regulations concerning information shown to customers. Interwoven’s Global Capital Markets (“GCM”) group is central to derivatives management inside major banks. Autonomy’s technology when combined with Interwoven’s GCM capability, will allow compliance and investigation over the historic and future data sources generated in this area."
Interwoven's CEO Joe Cowan is joining Autonomy at group level. Existing Autonomy director Anthony Bettencourt, who was CEO of Autonomy's acquired ZANTAZ risk management division and before that was at Verity, will take over the running of the Interwoven group.
I recently wrote a profile of Autonomy featuring an exclusive interview with Mike Lynch - read it at http://tinyurl.com/8gh9qk.
Read our analysis of Autonomy's stellar fourth quarter results, announced the day before the Interwoven acquisition, at http://tinyurl.com/cy7bpw.
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