Autonomy adds weight with Verity

UK-based search software supplier Autonomy has agreed a deal to buy its larger rival Verity in a surprise $500m move.

Verity is more than twice the size of Autonomy by revenue and the purchase will create the world’s biggest search software provider, with combined sales of $227m and 16,000 customers. The Verity name will be ditched in favour of Autonomy.

Verity has struggled in recent years as a result of technology that Autonomy chief executive Mike Lynch himself once labelled as primitive. Now he says that the Verity buy will give Autonomy the clout it needs to compete against rapidly-growing Norwegian rival Fast Search & Transfer (FAST).

However, Ovum analyst David Mitchell believes that Lynch is more likely motivated by two far bigger competitive menaces in the form of Google and Microsoft, both of which have entered Autonomy’s core enterprise search market.

“If Google and Microsoft get their respective enterprise search technologies working well, they will be an absolute force to be reckoned with,” said Mitchell.

What Autonomy must do now, he adds, is to produce a convincing roadmap to overcome the uncertainty wrought by such a deal. But so far no roadmap has been forthcoming and many prospective customers of Verity will no doubt hold off finalising their purchases until they can be sure that the deal will be in their interests.

The audacious acquisition also carries a number of other risks for the enlarged Autonomy, warned US investment bank Smith Barney.

First, the two companies operate in very different ways. Autonomy is a lean organisation that sells its products primarily through third parties, such as IT services suppliers and specialist consultancies. It targets the high end. Verity, meanwhile, has its own direct sales force and is a more ‘mass market’ product.

Furthermore, Autonomy is a smaller organisation and management may struggle to absorb the staff and other assets from the new acquisition. Meanwhile, there is a risk of defections among key staff at Verity if the uncertainty persists.

Second, the core technologies of the two companies are very different and will provide an integration challenge for research and development staff, who should be concentrating on developing core search technology instead.

Finally, merging the two companies’ technology and providing a painless migration path will be no easy task, but the alternative – maintaining two sets of technology – would also be difficult and costly.