Autonomy, the British search technology specialist, bought its way into the fast-growing litigation software sector today through the $375 million (£186 million) acquisition of Zantaz, the US-based digital archive group.

The news sent shares in Autonomy sharply higher, up 14 per cent at 829p, valuing the company at about £1.7 billion.

The group recently demerged its consumer arm, the online video search engine Blinkx, to concentrate on its core corporate business.

Zantaz, which is based in California, stores the vast amounts of unstructured data, including e-mails, voice messages and scanned documents that are being dealt with by large banks, law firms and other groups.

It specialises in making relevant information quickly available in the “discovery process” that takes place when a group is presented with a lawsuit.

The group controls about five petabytes of data for clients that include nine of the world’s top ten global law firms and fourteen of the top twenty banks.

One petabyte is equivalent to about 250 billion pages of text, enough to fill 20 million filing cabinets.

The market for Zantaz’s services has been boosted by a series of high-profile corporate scandals in which companies have been forced to make digital records available.

Recent changes to the US Federal Rules of Civil Procedure that mean companies now have 99 days to produce documents and other records of communications.

Forrester Research, the analyst, estimates that the "e-discovery" market will be worth $5 billion by 2011.

The deal also gives Autonomy exposure to Zantaz’s “software as a service” model, under which clients pay ongoing subscription fees rather than one-off licence charges.

The all-cash deal with be funded by a new underwritten share placing expected to raise $180 million, about £32 million in new debt and a portion of Autonomy’s cash reserves.

A separate placing to raise $100 million two months ago will also to be used to fund the deal, Autonomy said.

After the acquisition Autonomy will have about $75 million in cash left on its books, but it has said that it is not on the lookout for other acquisitions.

The Zantaz acquisition is the company’s second largest after Autonomy’s $500 million purchase of its rival Verity in 2005.

Zantaz posted underlying revenues of about $100 million in 2006 and profits of $5.2 million.

The acquisition is expected to generate savings of $25 million a year, to come from combining offices and merging the auditing processes.

The deal, expected to compete by August, will be accretive to earnings in the first six months.

Autonomy added in a trading statement that it expected to post record second-quarter results, ahead of expectations, boosted by the uptake of online video and audio services by its clients.

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