Software AG Makes SOA Play, Set to Acquire webMethods

| April 9, 2007 | Application Infrastructure | Competitive Intelligence Report

| Analyst: Brad Shimmin

Current Perspective: Very Positive
Vendor Importance: High
Market Impact: Very High

Event Summary

On April 5th Software AG, Europe's largest systems software and Service-Oriented Architecture (SOA) provider, and webMethods, Inc., a leading business integration and optimization software company, announced that they have entered into a definitive agreement for Software AG to acquire webMethods in a cash tender offer for $9.15 per share or approximately $546 million.

Analytical Summary

• Current Perspective: Very positive on Software AG’s acquisition of webMethods as this acquisition will infuse Software AG with much needed SOA expertise and technology, extend its reach into the U.S. market, and create long term cross-sales opportunities within webMethods’ complementary customer base.

• Vendor Importance: High to Software AG because in order to achieve its stated goal of doubling its revenue by 2011 through SOA offerings, the company needed to expand its reach beyond Western Europe and Asia as well as create the technical foundation necessary to carry forward its active governance-centric vision of SOA enablement and application modernization.

• Market Impact: Very high on the SOA and integration markets. Immediately, the combined company resources will extend Software AG’s active customer base to 4,000 companies over two continents within eight vertical industries, increasing pressure on established competitors. Over the longer terms, if Software AG is able to grow its professional services offerings as planned and successfully rationalize the two product lines, the company stands a very good chance of becoming another global powerhouse able to compete with the likes of Oracle, Sun, and IBM in terms of reach and capability.

Recommended Competitor Actions

• Competitors should take advantage of the uncertainty within Software AG and webMethods’ combined customer base stemming from this announcement. Competitors should point out the key fact that while the resulting company presents a much stronger financial picture than either company alone, that combined company won’t be able to leverage this collective strength until it has fully rationalized both overlapping product lines…something that will take at least nine to twelve months after the acquisition closes.

• Global firms including IBM, Oracle, Microsoft, Sun, and TIBCO should position this announced acquisition as a play for SOA market share built not upon complementary technologies but upon complementary customers. In other words, the Software AG that emerges from this acquisition will not have any major cross-sell wins with webMethods’ customers, though webMethods’ Optimize for Process may offer an immediate opportunity for Software AG customers.

• Competing vendors with strong post-sale integration services should call attention to the fact that Software AG is currently retooling its professional services organization. This will certainly benefit from an infusion of intellectual capital from webMethods in the long run, but for now, Software AG’s efforts will be hampered until the company has rationalized product lines and settled upon a single deliverable.

• Rival SOA vendors without highly unified tooling should immediately prioritize the development of design and development offerings that are both Eclipsed-based and able to work in concert with BAM/BPM and registry/repository software, facilitating run-time business process optimization. This will be a key differentiator for Software AG.

Recommended End User / Customer Actions

• Existing webMethods and Software AG customers should rest assured that Software AG will continue current support contracts and provide support for existing software deployments. However, all customers should press Software AG to provide a detailed roadmap concerning its product rationalization objectives with details on upgrade paths from existing products.

• Potential customers of both webMethods and Software AG interested in deploying simple messaging and integration software should continue evaluation and pilot efforts with the knowledge that regardless of the final product configuration settled upon, these mature offerings will likely remain intact technologically.

• All existing webMethods customers should view this acquisition in a positive light, as it will engender considerable financial stability. Similarly, existing Software AG customers should welcome this acquisition because it will eventually make a tremendous amount of SOA expertise available through consulting, support, and training services. Both customers should react to this acquisition positively but reserve judgment until Software AG has voiced its six, nine, and twelve month product plans.

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