An industry brief from Raymond James and Associates published on August 25th suggests that Hewlett-Packard Company (NYSE:HPQ) is finally getting over its “Autonomy” hangover and is actively seeking returns-based acquisitions. Raymond James analysts Brian G. Alexander and colleagues took the time to compile a list of companies they believe might be in HP’s sights.

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HP seeking innovation to participate in the next generation of IT

Under Meg Whitman, HP aims to become more important with regard to the next generation of IT, so the firm is focusing on innovation while minimizing costs in legacy areas.R&D investment has accelerated significantly over the last nine months, and has reached 3% of revenue for the first time since 2008. Keep in mind, however, that innovation and the related intellectual property can be either developed internally or acquired.

HP balance sheet is in the best condition in years as the firm is enjoying a robust cash flow and the company has a $5 billion net cash position (excluding financing debt and receivables). Given this improving financial position, HP management has made clear its willingness to make acquisitions following a three-year Autonomy hangover where no significant deals were finalized.

Of note, HP did not buy back as much stock as it intended in the most recent quarter because management of the company was “in possession of material, non- public information.”  Most analysts assumed this statement was relating to a pending acquisition. Many investors and some media reports suggested the acquisition target was cloud service provider Rackspace Hosting, Inc. (NYSE:RAX) (which Alexander notes would make sense given HP’s publicly disclosed decision to look for strategic alternatives, and would clearly enhance HP’s public cloud capabilities and add new IP related to OpenStack).

However, as HP and Rackspace have not commented on the speculation about a deal, and given the time frame involved, HP may have decided against a deal, believing that it already has or can develop similar capabilities.

If not Rackspace, then who?

HP Top 10 Acquisition Candidates

HP Top 10 Acquisition Candidates

In screening possible acquisition targets for Hewlett-Packard Company (NYSE:HPQ), Alexander and colleagues tried to identify companies with strong revenue growth, differentiated IP, next-generation solutions (i.e., software defined, converged, open source and cloud-based) and which have a motivation to sell. They came up with six private companies and four publicly traded companies:

  • Sumo Logic (private)
  • Hortonworks (private)
  • Cumulus Networks (private)
  • Adara Networks (private)
  • SimpliVity (private)
  • Actifio (private)
  • Arista Networks Inc (NYSE:ANET) (public)
  • Palo Alto Networks Inc (NYSE:PANW) (public)
  • Fortinet Inc (NASDAQ:FTNT) (public)
  • FireEye Inc (NASDAQ:FEYE) (public)