Software AG to Buy WebMethods for $546M

Aiming squarely at the SOA/BPM (service-oriented architecture/business process management) market niche, Germany's Software AG has announced it is buying WebMethods for approximately US$546 million, or $9.15 per share.

The announcement was hardly unexpected, as it was clear that WebMethods needed to do something to address its scale issue, as well as other competitive challenges.

The immediate market response has been favorable, Frederic Ruffy, an analyst with the investor education firm Optionetics, told CRM Buyer.

"Investors are pleased with the news," he commented, noting that shares of Software AG rose 7.7 percent.

"Meanwhile, shares of WebMethods touched a high of $9.27, which was slightly above the takeover price, but have since settled back to $9.15. The move represents a 26 percent premium to Wednesday's closing value," Ruffy said.

The fact that the stock price is trading at the proposed takeover price suggests that investors are confident the deal will go through, Ruffy explained. Perhaps more importantly, he said, "both companies seem pleased with the proposed merger."

Among the benefits for Software AG will be an automatically doubled customer base in North America. Meanwhile, WebMethods gains access to emerging markets in South America and Eastern Europe.

The deal is expected to close in the second quarter and create a combined company with 4,000 customers and 3,600 workers.

Complementary Product Lines

Perhaps more importantly, the acquisition will give Software AG, Germany's second largest software company, access to WebMethods' integration-centric BPM platform, which differs from pure-play BPM, Brad Adams, managing director of Boston Corporate Finance, told CRM Buyer.

"Overall, we are very bullish on this acquisition. [The companies are] a good fit for each other," he said. "WebMethods' platform fits precisely where AG wants to go."

Software AG's tech portfolio is like the plumbing or boiler room of an IT infrastructure -- a major, but hidden support to the operation, Adams explained, noting that "WebMethods has some of that, but has far more applications for the front end, especially with SOA-based governance tools."

The SOA Challenge

The news is probably most welcome among companies that have been challenged to bring scale to their use of SOA. It requires a a variety of SOA-related assets, including registries, repositories, and tools for governance and customization of services, wrote David O'Connell, senior analyst at Nucleus Research in a research note about the acquisition.

"By combining its product offering with WebMethods, Software AG has created a broader offering that enables companies to bring SOA to more of its developers and business processes while also governing how this powerful tool is used.

"This means improved purchasing power for SOA end users, the benefit of a single contact for all SOA-related purchases and services, and -- assuming Software AG pursues a unified operating environment for its acquired tools -- improved productivity for developers using WebMethods and Software AG solutions."

Industry Consolidation

The trend toward consolidation in the industry, now reaching down to the mid-tier players, is another plus.

"More consolidation in the integration space is healthy, as there are too many proprietary, J2EE (Java 2 Enterprise Edition)-based stacks on the market," John Senor, president of iWay Software, told CRM Buyer.

"With this acquisition, Software AG will be better positioned to complete against IBM (NYSE: IBM), Microsoft (Nasdaq: MSFT) and other solution stacks," he explained.

Indeed, according to an ARC Advisory Group research note, the acquisition will create an SOA and BPM product portfolio that spans SOA governance and enablement, BPM and business activity monitoring, application integration and legacy modernization.

Until now, most of the attention has been on the consolidation of integration software into tech platforms from major enterprise suppliers, said Bob Mick of ARC Advisory Group.

"However, some of the middleware companies transformed themselves into SOA suppliers, supplemented that with prepackaged industry functionality, and are doing OK. Software AG and WebMethods are quite complementary from a product viewpoint, and combined they will be a stronger competitor," he added.