Autonomy’s takeover provides boon to technology sector

Hewlett-Packard’s takeover of Autonomy Corporation (LON:AU.) is further evidence of increasing mergers and acquisitions activity in the technology sector, according to analysts in the City.

After Google recently announced its biggest acquisition to date with its offer of US$12.5 billion for mobile phone manufacturer Motorola Mobility Holdings, Autonomy’s board has welcomed a £7 billion takeover offer from the US information technology giant.

The £7.1 billion cash offer is worth £25.50 per share to Autonomy’s investors, who include Mike Lynch – its chief executive officer who founded the company in Cambridge in 1996 and who now holds just over 19.8 million shares (8.14 per cent of the company). 

Yesterday, Autonomy’s share price closed down 129 pence at 1,429 pence each – a fall of 8.3 per cent – amid the wider market selloff. Today they leapt up sharply to 2,524 pence each – an increase of 76.5 per cent – in early trading.

The takeover of Autonomy is part of HP’s plans to expand its own offerings in the market for enterprise information software. HP believes that Autonomy’s IDOL platform, when combined with the US firm’s own strength in enterprise software, services and infrastructure, will enable the combined business to deliver “a next-generation information platform”.

HP’s chief executive officer, Léo Apotheker, explained that the takeover of Autonomy presented the US firm with the opportunity to accelerate its strategic vision to lead a large and growing market. “Together with Autonomy, we plan to reinvent how both structured and unstructured data is processed, analysed, optimised, automated and protected,” he said.

Mike Lynch added: “This is a momentous day in Autonomy's history. From our foundation in 1996, we have been driven by one shared vision: to fundamentally change the IT industry by revolutionising the way people interact with information. HP shares this vision and provides Autonomy with the platform to bring our world-leading technology and innovation to a truly global stage, making the shift to a future age of the information economy a reality.”

Google’s and HP’s appetite for M&A action offers some hope for investors in technology companies of all shapes and sizes, as stock markets are beset by uncertainty, and some in the City believe that other technology firms should be considered as potential takeover targets for hungry predators looking to consolidate their particular slither of the technology industry.

Merchant Securities believes that the Autonomy takeover news “should spur renewed interest in stocks where takeover rumours have been rife”.

These include Micro Focus (LON:MCRO) and Blinkx (LON:BLNX), the share prices of which Merchant notes are 41 per cent and 39 per cent off their respective highs for the year.

Meanwhile, Merchant said that it continues to highlight “those companies with significant market positions backed by intellectual property”, such as ARM Holdings (LON:ARM) and Wolfson Microelectronics (LON:WLF).

Rival broker Matrix Corporate Capital also highlighted Micro Focus, which it pointed out has had multiple approaches already and an “attractive valuation” helped by a strong market position, large recurring revenue base, strong margins and potential as a consolidation platform. “At least two of the bidders looking at Micro Focus are private equity funds,” it noted.

However, Matrix also said it believed accounting software group Sage (LON:SGE) would be a “red herring” as it is unlikely to see bid interest, “given its lower organic growth, valuation and lack of a key compelling ‘growth’ product or technology that would draw a bidder in these marketS”.

Another technology firm that might be worth keeping an eye on with regards to takeover activity could be Synchronica (LON:SYNC, TSE:SYN). The firm has recently taken the role of consolidator itself, after it bought Nokia’s Operator Branded Messaging business. 

Earlier this week, Northland Capital Partners said that Google’s acquisition of Motorola Mobility Holdings should have a “slightly positive” impact on Synchronica since it is involved in Android-based smart phones, which Google supplies the operating system for.