Autonomy Pays $500 Million for Verity

British search software company Autonomy Corp. PLC has agreed to buy fellow search technology developer Verity Inc. in a cash deal totaling around US$500 million, the companies announced Friday.

Autonomy Chief Executive Officer (CEO) Mike Lynch hailed the acquisition as a transformational deal for Autonomy that will give the combined companies a base of 16,000 customers. The deal also brings Autonomy, based in Cambridge, England, a U.S. outpost in Verity’s Sunnyvale, California, headquarters.

Autonomy has gained some deep-pocketed rivals in the search market as companies such as Google Inc. and Microsoft Corp. work to expand their search offerings into enterprise-strength tools. Buying Verity increases Autonomy’s scale and diversifies its revenue streams, company executives said.

Founded in 1988, Verity has been consistently profitable for the past five years. In its last fiscal year, the company had revenue of $142.6 million and net income of $7.5 million. Together, Autonomy and Verity would have had revenue of $227 million over the past twelve months, according to Autonomy.

Autonomy agreed to pay $13.50 per Verity share (ticker symbol: VRTY), a 30 percent premium on Verity’s Thursday closing price of $10.37, on the Nasdaq exchange.

Autonomy CEO Lynch will remain CEO of the expanded company, while Verity CEO Anthony Bettencourt takes over as CEO of Autonomy’s U.S. subsidiary. The company’s current U.S. head, Stouffer Egan, will become chief strategy officer of the expanded organization.

By Stacy Cowley, IDG News Service