Cambridge keeps HQ and UK staff net £30m as HP offers £7.1bn for Autonomy

Autonomy and Hewlett Packard (HP) have vowed to keep Cambridge central to Autonomy's future after agreeing to the £7.1bn cash purchase of the software firm by HP, the largest ever acquisition of a Cambridge company.

HP has offered to acquire all Autonomy's shares for £25.50, a premium of over 78 per cent on its share price at close on Thursday, 58 per cent on its prior one month average and 30 per cent on the company's highest price since the dot.com bubble burst - of £19.54 a share reached in June last year.

Founder and CEO, Dr Mike Lynch, who owns over 8 per cent of Autonomy, stands to make around £500m from the sale while its UK employees will share a £30 million share options bonanza.

"This is a momentous day in Autonomy's history," said Dr Lynch in the official announcement.

Dr Lynch will continue as head of Autonomy, which will operate as a separate entity to HP, though he will report to its president and CEO, Leo Apotheker.

The official line is that HP and Autonomy plan to keep Cambridge, home to 175 of Autonomy's 2,700 staff, as the company's headquarters and its key R & D hub.

Autonomy will effectively become a key component of the information software division of HP, ranked number 11 on the Fortune Global 500 with revenue totalling $126bn for fiscal year 2010.

Autonomy's trick is its ability to make sense of any piece of digital data flying around companies, including such seemingly intangible things as emails, videos and phone calls.

It then uses this to provide a huge range of infrastructure applications from pan-enterprise search to customer interaction solutions to web optimisation.

As a result it has over 25,000 global companies as customers, including pretty much all the blue chips.

The seed behind Autonomy was planted when Cambridge graduate and PhD, Dr Lynch got together with Richard Gaunt to form what became Cambridge Neurodynamics in 1994 using a £1,000 loan from a long deceased music entrepreneur - who has never been named.

Dr Lynch was already a seasoned startup entrepreneur at this stage, having also founded Lynett Systems - a company developing audio technology for the recording industry - in the late 80's.

Neurodynamics spun Autonomy out in 1996 with the backing of private equity firm, Apax Partners, who in total invested £4m.

While the IPO window had remained shut to most UK tech firms for some time, Autonomy managed to get three of them away, floating on the now defunct European exchange, EASDAQ at 30p a share in July 1998 at a market cap of $100m having reported revenues of just $1.5m in 1997.

The initial £1.7m Apax invested in Neurodynamics in exchange for a one third stake in Autonomy has become part of venture capital folklore. When it cashed in the last of its shares in 2001, it had made around £1bn from its initial investment according to some reports.

Compared to the 30p on Easdaq, the £25.50 offered today represents a return of over 7500 per cent in just 13 years as a listed company.

Autonomy has since made a number of blockbusting acquisitions of its own buying Virage, NCorp, eTalk, Verity, Zantaz, Interwoven, Microlink, CA Technologies and Iron Mountain Digital for a combined total of well over $2bn.

The HP deal is being touted as the second largest acquisition in software history - the first Symantec's 2005 purchase of Veritas for $13.5b.

As well as positioning HP at the front of a $20bn enterprise information management space, HP says the deal provides it with the ability to reinvent the $55bn business analytics software and services space, which is growing at 8 per cent annually.

HP also sees a lot of value in Autonomy's cloud infrastructure, Autonomy claims to have the world's largest private 'cloud'.

This is indicative of a move towards the higher margins of the software industry and away from hardware - HP also announced it may spin off its home computing division.

"Autonomy presents an opportunity to accelerate our strategic vision to decisively and profitably lead a large and growing space," said Apotheker.

"Autonomy has an attractive business model, including a strong cloud based solution set, which is aligned with HP's efforts to improve our portfolio mix.

"We believe this bold action will squarely position HP in software and information to create the next-generation Information Platform, and thereby, create significant value for our shareholders."

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