Autonomy to buy competitor Verity

Enterprise search company Autonomy announced it will acquire Verity for approximately $500 million.

The deal joins two leaders in the market for software to manage corporate data, which has recently seen increasing competition from Web search giant Google.

Autonomy CEO Mike Lynch called the deal a "transformational acquisition" and said it will create better products for their combined 16,000 customers. Autonomy's customers include Astra Zeneca, BBC, British Aerospace, Nokia, Shell and Vodafone.

Verity CEO Anthony Betancourt said the companies' products are already complementary and that they already share customers.

David Mitchell, practice leader for analysts Software@Ovum, called the deal a "necessary move" as it gives the two mid-size companies "the scale to invest in R&D and innovation."

Competitors such as Google already have the capital to be formidable foes in the search market. "A key defense is to acquire scale yourself," Mitchell told silicon.com.

Analysts have commented that Cambridge-based Autonomy is paying a premium for California-based Verity--a 30 percent rise over Thursday's closing share price--but it could be worth it for the revenue boost. Autonomy says it expects to see earnings double in the first year as a combined company.

Autonomy raised about half of the sale price through a rights issue and says that after the deal (which is expected to close later this year) it will have a cash balance of at least $65 million.

Lynch will remain CEO of Autonomy and Verity's Betancourt will become CEO of Autonomy's U.S. division, called Autonomy Inc.

Sylvia Carr of Silicon.com reported from London.