FT.com / In depth - Autonomy strikes subprime gold

FT.com / In depth - Autonomy strikes subprime gold

Autonomy strikes subprime gold
By Maija Palmer, Technology Correspondent

Published: January 4 2008 01:18 | Last updated: January 4 2008 01:18

Autonomy has struck a $70m (£35m) deal with a large global bank, by far its largest contract to date and the first concrete sign that the search software company could benefit from the US subprime lending crisis.

The deal, believed to be with Citigroup, is for software that allows businesses to quickly retrieve documents for lawsuits. Banks are thought to be growing increasingly worried about facing shareholder litigation over the losses they have taken on subprime home loans and are setting their internal computer systems in order to meet any legal demands.

Autonomy declined to name its client.

“We think it is likely that more deals of this nature will be signed as pressures mount for banks to prepare for potential litigation in the wake of the subprime crisis,” said Derek Brown, analyst at Seymour Pierce.

Citigroup reported subprime-related losses of $11bn last year, leading to the resignation of Chuck Prince, chief executive. Merrill Lynch also wrote down £8bn, and UBS, Morgan Stanley, HSBC and Bear Stearns have all reported heavy losses from the mortgage crisis.

Mike Lynch, chief executive of Autonomy, said the company had small contracts with almost all the large banks and expected many of these to be expanded.

“Banks have been looking at this issue for some time, but now the subprime crisis is causing them to accelerate their programmes,” he said.

If shareholders sue, discovering all relevant unstructured documents such as e-mails and phone records can take months or even years. However, US federal rules of civil disclosure, which came into force a year ago, require companies to file all documents to the court in just 99 days.

Autonomy acquired the e-discovery software through the purchase of US-based rival Zantaz in July for $375m.

The $70m deal, expected to run over four years, is the largest single contract Autonomy has ever signed. Its average deal size is usually about $375,000. In the third quarter, for example, it only had five deals of more than £1m.

Shares in Autonomy, which have climbed 72 per cent over the past year, closed up 3 per cent at 901p on Thursday.
Copyright The Financial Times Limited 2008