H&Q SPOT REPORT ON COGNISOFT MERGER
HAMBRECHT & QUIST LLC
SPOT REPORT
INTERNET TECHNOLOGY
(VRTY/FY ENDS MAY/$18 1/4)
RECOMMENDATION: STRONG BUY
Daniel H. Rimer (415) 439-3425
drimer@hamquist.com
January 14, 1997
Verity's acquisition of Cognisoft adds a critical technology piece that will further solidify Verity's position as the de facto standard for searching across intranets.
The formation of a new Information Applications Business Unit will allow Verity to sell shrink-wrapped applications on top of the Verity platform.
Intelliserv will enable Verity to leverage its current installed base of over 15 million clients and capitalize on a significant add on sales opportunity.
Hence we are maintaining our STRONG BUY rating on the stock.
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COMPLIMENTARY TECHNOLOGY EXTENDS VERITY'S SEARCH `97 PLATFORM;
MAINTAINING STRONG BUY RECOMMENDATION
Verity, Inc. today announced the acquisition of Cognisoft Corporation, a privately-held, Intranet software start-up based in Bellevue, Washington. We view this cash acquisition as providing critical technology to further solidify Verity's position as the de facto standard for searching across intranets.
Importantly, the Cognisoft acquisition further elevates the role of searching within enterprises-moving beyond Verity's current position of providing the most extensive retrieval (or "pull") technologies to now incorporating advanced, personalized broadcast (or "push") capabilities. Additionally, we believe the shrink-wrapped nature of the Cognisoft flagship product, namely Intelliserv, should catalyze the initial rate of adoption of Verity's SEARCH'97 platform through its traditional direct channels as well as new indirect channels.
Cognisoft's Intelliserv
We believe Intelliserv complements Verity's existing SEARCH'97 product thrust and offers another means of accessing and retrieving information within an enterprise. Intelliserv is a Windows NT server-based application which allows corporations to "push" fresh, personalized information to employees, customers and/or business partners. The product monitors multiple data sources-including
ODBC databases, file servers, Web servers, Lotus Notes and Microsoft
Exchange and dynamically delivers notifications or updated information to corporate users through customized Web pages, email or paging. Importantly, Intelliserv exploits the familiar broadcast model pioneered by PointCast and adapts this "push" model to broadcasting within the enterprise.
Unlike other information delivery or push technologies (See Exhibit A), Intelliserv does not require a client-side application. This reduces end user complexity and overall maintenance costs. Whereas PointCast and others are focused on broadcasting branded content to viewers through channels, Intelliserv is focused on providing corporate users with time sensitive information via whatever medium they prefer: email, Web, paging, etc. Another primary differentiator is that Intelliserv, like Verity's SEARCH `97 platform,is specifically designed to mine corporate data sources and increase the value of
information by making it readily available for immediate decision making.
Given this differention, it would not be surprising to see companies like PointCast partner with Verity to add both robust searching functionality to their applications, as well as data delivery from multiple sources (i.e. ODBC databases, Lotus Notes, Microsoft Exchange, Web servers, etc.)
Exhibit A
Various Segments of the Push Technology Market
- PointCast Inc.
- Marimba, Inc.
- BackWeb Technologies
- Diffusion Inc.
- Data Channel Corp.
- AirMedia Live
Information Filtering and Push Applications
- CompassWare Development Inc.
Notification Applications
- Intermind Corporation
- Digital Delivery Inc.
- Marimba Inc.
Intelliserv is slated to enter beta in February as SEARCH `97 Intelliserv and we expect general availability at the end of the first half of 1997. Consequently, we do not expect to see any significant incremental revenue from the Intelliserv product until the third or fourth quarter of calendar 1997.
Details of the Transaction
Verity is paying $10 million in cash in exchange for all outstanding shares of Cognisoft. Importantly, we expect this transaction to marginally impact third quarter operating income. Hence we have adjusted our model from a third quarter operating income of $600,000 to $480,000 and EPS of $0.02 to $0.01.
Organizationally, Cognisoft will be folded into Verity through the creation of a new business unit called the Information Applications Business Unit. The new business unit will be comprised of the entire Cognisoft staff of 17 employees (including 5 former Microsoft managers) and will be based in Bellevue, Washington. Importantly, this new business unit will focus on user-related interface issues as well searching applications.
Summary and Recommendation
We believe the acquisition of Cognisoft is strategically beneficial to Verity for the following reasons: 1) Intelliserv raises the bar for search as a technology solution and rounds out Verity's searching platform with both pull and push capabilities; 2) Intelliserv will enable Verity to leverage its current installed base of over 15 million clients and capitalize on a significant add on sales
opportunity; 3) The addition of Intelliserv to Verity's existing feature set should further accelerate the rate of adoption of the SEARCH `97 platform.
Hence we are maintaining our STRONG BUY rating on the stock.
Jamie Corroon
Research Associate
Internet Research
Hambrecht & Quist
Tel. 415-439-3260
Fax 415-439-3345 |
