Autonomy pays $375m for US online search leader

Autonomy's halcyon year is continuing after the internet infrastructure software developer snapped up the American content archiving company Zanataz yesterday, a deal that propelled a further 13 per cent gain in its share price.

Autonomy's shares have surged 63 per cent over the past year as the dotcom survivor's context-based search technology has increasingly been deployed by blue-chip customers such as Siemens and Ford. The Zanataz deal, combined with an upgrade to its second-quarter guidance, helped drive a surge in its share price to 825p. Autonomy shares changed hands at 487p in January.

Government and corporate customers are increasingly under pressure to track the vast swathes of data trapped in data centres, including emails, voice messages and even video calls. Recent legislation such as the US Federal Rules of Civil Procedure means that organisations are legally required to locate specific information within the data centre on request.

Zanataz, based in California, provides content archiving and search services to nine of the top 10 US law firms and 14 of the top 20 security firms. Mike Lynch, the chief executive of Autonomy, said the archiving software is complementary to Autonomy's Aungate product that analyses unstructured content. "This is unique. For the first time a large bank, for example, can buy a single product for high-end enterprise search while also meeting their legal obligations under new legislation," he said.

Derek Brown, an analyst with Seymour Pierce, said that the need to quickly locate relevant information from within terabytes of unstructured data was a "thorny problem." He said: "To be able to do this across all information sources and provide one, easily analysed archive is the Holy Grail." The market for "e-discovery tools" is expected to be worth $5bn by 2011, according to Forrester Research.

Autonomy has paid $375m in cash for Zanataz, funded partly through a placing of 12.7 million new shares, representing 6.4 per cent of its existing share capital. Mr Lynch said he does not expect Autonomy to make any more sizeable deals for some time despite retaining $75m in cash after the deal.

The US company already uses Autonomy's IDOL platform. Autonomy said it expects to strip $25m in annual cost savings after integrating Zanataz and will also benefit from around $45m in tax losses.