Autonomy Sale Signals Software Boom as SAP May Be Targeted
August 19, 2011, 12:16 PM EDTBy Ragnhild Kjetland and Jonathan Browning
(Updates with closing share prices throughout.)
Aug. 19 (Bloomberg) -- Hewlett-Packard Co.’s $10.3 billion takeover of Autonomy Corp. bolstered valuations for European software makers, highlighting their attraction compared with hardware providers.
HP is paying about 24 times earnings before interest, taxes, depreciation and amortization, a multiple that was last matched by Oracle Corp.’s acquisition of Peoplesoft Inc. in 2003, according to data on comparable deals compiled by Bloomberg. SAP AG is seen as both a possible target, for Microsoft Corp. or International Business Machines Corp., and as a possible buyer, of companies such as Software AG and Temenos Group AG, analysts said.
As businesses seek to streamline IT departments, they’ve been receptive to spending more on software that makes efficient use of their hardware, resulting in reduced spending on physical infrastructure. Meanwhile, consumers are spending less on personal computers amid a growing market for tablet PCs.
“Simply put, hardware stinks and software is nirvana,” Sebastien Thevoux-Chabuel, an analyst at Oddo Securities, said in a note. “The deal is a great reminder than software is the most strategic space in the IT market.”
HP Chief Executive Officer Leo Apotheker came from SAP, the world’s largest maker of business-management software, based in Walldorf, Germany.
SAP, which is 23.7 percent owned by founders including Chairman Hasso Plattner, could be a target, Theovoux-Chabuel said.
‘Strategic Asset’
“With some founders interested in selling their stakes at a good price, SAP remains one of the most strategic assets for Microsoft or IBM from an M&A standpoint,” he said.
At a similar valuation to that which HP is paying for Cambridge, England-based Autonomy, SAP would cost about 100 euros per share compared with about 34 euros, Theovoux-Chabuel said. He has a “buy” rating and 48 euros price target on SAP.
“We are in a very strong position with our portfolio and innovation strategy to continue to grow organically or through tuck-in acquisitions that bring value to our customers,” spokesman Christoph Liedtke said in a telephone interview.
SAP closed unchanged at 34.26 euros in Frankfurt trading.
Josep Bori, an analyst at Exane BNP Paribas in London, said that for SAP the HP-Autonomy deal is a “missed opportunity.”
“This deal may rejuvenate the attractiveness of long- rumored SAP targets Software AG and Temenos,” Bori said in an e-mail. He rates Software AG “outperform” with a 47 euros price target and Temenos “outperform” with a 23-euro target.
Micro Focus
The Bloomberg EMEA Software Index jumped 5.4 percent today, the biggest increase since March 2009, led by Autonomy.
Software AG rose 5.8 percent to 28.10 euros in Frankfurt, while Temenos climbed 5.4 percent to 14.55 euros in Zurich. Misys Plc, whose talks to be bought by Fidelity National Information Services Inc. fell through earlier this year, advanced 6.1 percent to 249 pence in London.
Software AG is interested in consolidating its own market, spokesman Otmar Winzig said in a telephone interview today. “We are acquisitive,” he said.
The company “wouldn’t expect a hostile takeover to work with our current shareholder structure,” he said. Still, a “win-win situation” in which a deal would enhance “the technology leadership,” can’t be ruled out, Winzig said.
‘Bucketloads’
Another software company that may become a target is Micro Focus International Plc, Rajeev Bahl, a London-based analyst at Matrix Corporate Capital LLP, said in an interview. Newbury, England-based Micro Focus is “supremely cheap,” he said. Sage Group Plc, the U.K.’s biggest software maker, is more likely to be a buyer than a target at the moment,” he said.
“Tech is globally very cheap, the companies throw absolutely bucketloads of cash off and the U.K is even cheaper,” Tim Daniels, TMT strategist at Olivetree Securities, said in an interview.
Micro Focus advanced 3.5 percent to 263 pence in London, while Sage climbed 1.8 percent to 235.8 pence.
Sage is close to buying Australia’s MYOB Pty Ltd., potentially the largest acquisition in its history, two people with knowledge of the matter said earlier. The deal, under which MYOB may fetch about A$1.3 billion ($1.4 billion) could be announced as early as today, they said.
High Multiple
HP’s Autonomy offer is 64 percent more than Autonomy’s close yesterday and 24 times trailing Ebitda, compared with a median of 17 times Ebitda in 10 comparable deals, Bloomberg data show.
“The timing is wrong and the takeover price is by far too high,” said Heinz Steffen, an analyst at Fairesearch GmbH & Co. in Kronberg, Germany. Apotheker should streamline HP’s organization first before making a big software acquisition, he said, calling yesterday’s announcement “desperate action” that may have resulted from pressure from the market.
“Our focus on building a successful software business has momentum,” Apotheker said on a conference call yesterday. “We are focusing on what needs to be fixed, what needs to be shut down, and what needs to be considered for separation.”
Temenos spokeswoman Petra Shuttlewood didn’t immediately return a call for comment. David Shriver, a spokesman for Sage, and Clare Thomas, a spokeswoman for Micro Focus, declined to comment. A spokesman for ARM declined to comment.
--Editors: Robert Valpuesta, Kenneth Wong.
To contact the reporters on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net
