WebMethods to vault Software AG into top 3 SOA players

Acquisition will position Software AG behind leaders IBM and Tibco in the SOA and BPM market

Software AG hopes its planned acquisition of webMethods will catapult it to a leadership position among vendors of SOA (service-oriented architecture) development products as well as help accelerate its ambition to become a €1 billion ($1.3 billion) entity by 2011.

The two companies signed a definitive agreement for Software AG to purchase webMethods for $546 million in cash Wednesday night, according to Karl-Heinz Streibich, CEO of Software AG. "This is a merger of two strong players in their respective market segments," he said on a Thursday conference call. "We will have the possibility to become the global leader in SOA and BPM [business process management] in the future."

Combining the two firms' integration software revenues will position Software AG as the number three player in the SOA and BPM market, behind leader IBM and Tibco Software. Software AG was previously in 13th place lagging the likes of Microsoft, Oracle, and Sun Microsystems, according to figures for 2005 from market analyst Gartner.

Both Streibich and David Mitchell, president and CEO of webMethods, pointed to plenty of synergies between the two companies and little overlap between their product offerings, customers, geographic focus and vertical markets. The majority of webMethod's 1,500 customers are in North America, while Software AG has more than 3,000 customers around the world, especially in Europe and emerging markets in Asia and Africa. They both commented on the likelihood of plenty of cross-selling and upselling of webMethods and Software AG products to their respective customer bases.

"This announcement makes a ton of sense for Software AG," Ron Schmelzer, senior analyst with ZapThink, wrote in an e-mail comment. "This is a market share play and a SOA play entirely." As well as gaining extra capabilities in SOA integration, process and governance, Software AG will also acquire Infravio's registry and repository which webMethods purchased last year.

"More importantly, this acquisition gives Software AG the visibility in front of potential customers and partners they didn't have on their own," Schmelzer wrote. "The company is now a major force in the SOA industry and can easily compete against any other market player in the industry."

One question is what the acquisition of webMethods will mean for Software AG's existing partnership with Fujitsu. At present, Software AG resells Fujitsu's Interstage BPM software. Streibich said that Software AG is currently deciding how to position Interstage in future, since webMethods' rival product will clearly become its main BPM offering in future.

Software AG's offer for webMethods of $9.15 per share represents a premium of 25.7 percent over the U.S. company's closing stock price Wednesday of $7.28, according to Arnd Zinnhardt, chief financial officer of Software AG. Subject to customary closing conditions, he expects the acquisition to close by the end of June.

WebMethods' Mitchell wouldn't provide specifics on other bids the firm received. "There was substantial strategic interest in the company," he said. "Software AG's offer was the most compelling." He did add that webMethods, which has just closed its financial year, had a pretty challenging first half of the year particularly in relation to distributing its software, problems that he thinks were largely fixed in the second half of the year. Mitchell expects to stay onboard after the merger is complete. "I wouldn't miss this for the world," he said.

WebMethods is strong in BPM and BAM (business activity monitoring), while Software AG is strong in ESB (enterprise service bus) technology and SOA governance along with its traditional roots in legacy application modernization, according to Peter Kürpick, member of the Software AG board in charge of marketing business integration. Software AG will continue its focus of providing a best of SOA suite approach not tied to a particular operating system, database or application server.

Once the companies are combined, Software AG will undertake a technical and marketing challenge of how to bring webMethods' Fabric product family and Software AG's Crossvision software suite together, Kürpick added.

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