Software AG to Buy webMethods

I have an interview with new webMethods hire Bruce Williams to finish up and publish on BPMEnterprise.com; but I didn’t want to delay my coverage of the acquisition of webMethods by Software AG.

Whenever a business deal of this scale ($546 million) takes place, we have to ask, does this make sense, based on what we know about the companies involved?

To learn more, I tuned into a recording of the conference call about the sale for analysts and press people here.

For Software AG, participants included Karl-Heinz Streibich, CEO of Software AG; Arnd Zinnhardt, CFO; and Dr. Peter Kürpick, member of the executive board in charge of R&D, marketing business integration. For webMethods, David Mitchell, president and CEO was present.

According to Streibich, this acquisition is be a "major step forward in the drive to become next 1 billion Euro company by 2011." He felt so strongly about that point, he said it three times. That’s one route to bigness (if not greatness) -- acquiring other companies that are doing well in their segments.

Beyond that though, there are products and customers to consider.

On the product side, the two companies are fairly complementary. webMethods, of course, has a portfolio of business integration software, including Fabric 7, its latest suite of BPM tools. Software AG, which has a storied history in helping companies modernize their legacy systems, offers enterprise application products in the SOA space, including CentraSite (jointly developed with Fujitsu) and Crossvision (licensed from Fujitsu). Hmm. BPM and SOA. Good fit if they’re standards-based products where sorting out the interoperability issues can be streamlined.

According to Kürpick, "The combination will end in a comprehensive suite of products," encompassing SOA governance (Software AG), BPM and BAM (webMethods), application composition (both perhaps?), application integration (Software AG) and legacy modernization (Software AG).

What happens with those Fujitsu Crossvision customers? If I was understanding Streibich, the company focus will be on the acquired products from webMethods, but it will continue pushing the product from Fujitsu in the midterm. "We have not yet made [a determination] whether this will be a high end product co-existing with the other one. [This] will change nothing in the midterm or for projects we have in the pipeline," he said. In other words, since the Fujitsu deal is non-exclusive, it will eventually ride off into the sunset to find a land where it can work and play with other partners.

On the client side, according to the presentation, Software AG has 25% of its revenue coming from North America, 56% from Europe and 19% from the rest of the world. webMethods receives 62% of its revenue from North American customers, 26% from Europe and 12% from the rest of the world. So one is heavy in the Americas; the other is heavy in Europe. This isn’t a situation then where one company is buying another one to kill off its products and lord over its customer base.

Once the deal is completed -- Software AG expects that to happen by the end of June 2007 -- Software AG will be the third largest player in the SOA and integration market behind IBM and Tibco. The webMethods board has already approved the deal, which offers a 25.7% premium on the share price as of the closing of the market on April 4, 2007. And, as CFO Zinnhardt expressed, "It’s not a natural law that only private equity companies are active on the acquisition markets..."

The bottom line: I expect most analysts to quickly come out with reports that say something to the effect of, "We believe this is a strategic move that makes sense for both companies, presuming they do not get bogged down in problems with merging cultures, sales staff and technologies."

What do you think?