Consolidation In BPM/SOA Space: Software AG to Acquire webMethods

April 6, 2007

In an interesting development last week, webMethods announced that it would be acquired by Software AG in a cash buyout deal valued at $546 million in cash, roughly a 26-percent premium over its stock price. The combination of the two formidable software companies is an interesting one, and brings with it many rich areas for discussion. At the highest levels, it appears that Software AG views this acquisition as a way to gain a stronger foothold and greater visibility in the US Market, something it has been less successful with in the past.
Software AG has a strong basis in SOA, enterprise integration (especially legacy integration) and has developed XML-based servers in recent years to match customer demands. In contrast, webMethods has done a remarkable job in the U.S. since its founding in 1996, growing its enterprise application integration (EAI) solution into a market-leading BPM/BAM composite application platform with SOA support.
The combined forces of the two companies will have 4,500 customers (doubling Software AG’s North American customer base) and potential revenues of about $1.3 billion/year. The combined company will focus on five technology areas: SOA governance, BPM/BAM, application composition, application integration, and legacy modernization. webMethod’s flagship product, webMethods Fabric, is positioned as an application composition platform, although it also incorporates the company’s strong integration capabilities with its equally impressive BAM solution. Fabric will be the second application composition platform for Software AG, which currently offers its own under the brand Crossvision.
Upside Uptake
What does this mean for the BPM/BAM market? In general, Upside Research has been a fan of webMethods’ solutions and its increasing foothold in the BPM market the past several years. webMethods Fabric has gained momentum and has become more recognized in BPM circles in the past several quarters. Software AG is a powerful company that has had limited success growing its visibility in the US, and the webMethods acquisition could position it well to be a major player. However, this will require a US-focused marketing approach and presence with a cohesive story to existing customers and prospects about how the newly merged technologies and products will meet market demands.
Key to the success will be the need for Software AG to establish a clear and concise direction to maintain the momentum that webMethods has achieved in the U.S. market. In short, we believe it’s critical for both companies that webMethods not fall into the “acquisition black hole.??? If the companies are successful in their merging of technology and product lines and plans, then Upside Research believes the new company will be a formidable competitor in the converging SOA/BPM/BAM markets. With strong enterprise and legacy integration capabilities, a composite application development environment, business process optimization functionality, and BAM tools, the new Software AG may finally have what it takes to step into the ring with some of the biggest enterprise software vendors in the U.S. Market (IBM comes to mind.). For this to happen, though, the execution of this acquisition will need to be seamless and the webMethods brand may need to be preserved and leveraged to its greatest potential.

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