Mike Davis
Autonomy to buy Meridio
During today's Q3 earnings call, Autonomy Corporation plc CEO, Dr Mike Lynch, announced that it had made a formal offer to acquire Electronic Document and Records Management (EDRM) specialist, Meridio. While the markets marked down Autonomy on its results, Ovum believes they have missed a very significant move by the company which will increase further its penetration into the large-scale, high-margin US defence and intelligence sector, and offer the 'missing piece' in information management for large financial and other institutions.Comment: The numbers reported by the Cambridge, UK-based company, best known for search and discovery technologies, were 'only' in-line with financial analysts' expectations, and prior to the call at 9:20am shares in Autonomy had dropped 7.1% to 887.5 pence. While Dr Lynch reported that the quarterly revenues were yet “another quarterly record”, up 49% from Q3 2006, gross profit margin dropped from 91% to 85% for the same period, and Average Selling Price, although up from the same quarter in 2006, had notably dropped from $385k in Q2 2007 to $375k in Q3. As with all earnings calls there was much made of the positives in the numbers in the quarter, including 24% organic growth, five deals over $1 million, 13 new OEM deals and new/expanding customers such as Oracle (the recently acquired Stellent ECM product OEMs Autonomy), Shell, Toyota.com and the New York Stock Exchange.Autonomy also claimed to be making further gains on its rival Norwegian-based Fast Search and Transfer (FAST), stating it had only lost a total of $250k in competition with FAST.Dr Lynch quietly mentioned the proposed Meridio acquisition for $40.8 million in his opening remarks describing it as “technology infill”. Meridio is privately-held and Belfast-based, with 150 staff. It has US offices in Washington DC, Boston, and most notably a satellite research team based in Redmond. The latter is significant because it has a very strategic relationship with Microsoft, where it provides a Records Management (RM) 'back-end' to enterprise-scale SharePoint deployments. The biggest example of this is the UK Ministry of Defence with 340,000 licensed seats for the product.As with the acquisition of Verity, in Meridio Autonomy is gaining not only US DoD approved software, it is gaining security cleared sales and engineering staff, enabling further penetration into that lucrative market.The description of “technology infill” I believe is right, but completely minimises the potential of the acquisition. The recently-completed acquisition of Zantaz, gave Autonomy a significant presence in email archiving - particularly for the financial services sector where eDiscovery for litigation purposes is an increasingly important factor - with US legislation such as SEC Rule 17a3/4, FRCP 2006, and of course the Sarbanes-Oxley Act. But archiving information is not Records Management, it does not offer the latter's functionality of having controlled disposal after a defined retention period, and the Meridio solution has standards approval for that functionality on both sides of the Atlantic - DOD in the US and National Archives in the UK.Meridio functionality makes an Autonomy offering delivering archiving, search/discovery, and certified records management in a single platform a very compelling proposition to the largest of organisations. Not only the defence/intelligence and financial services sectors, but pharmaceuticals and central government and I believe the financial gurus have missed a very serious trick in their analysis.
