Software AG's purchase webMethods Inc. today for $546 million will roil the service-oriented architecture (SOA) market, analysts say.
The acquisition will more than double Software AG's customer base for SOA and Business Process Management (BPM) products in North America, the Germany-based company said this morning in an announcement. With this deal, which is expected to close by the end of the current quarter, Software AG will surpass Oracle Corp., and Tibco Inc. in the SOA/BPM market, making it second only to IBM, analysts said.
"This acquisition clearly positions Software AG as one of the global leaders in SOA and BPM," said Karl-Heinz Streibich, CEO of Software AG, in the announcement of the deal. Analysts from ZapThink LLC agreed. However, Anne Thomas Manes of Burton Group, Inc., expressed skepticism on the value of the deal.
"This is huge news in the SOA space," said Jason Bloomberg, senior analyst with ZapThink LLC., "because the combination of Software AG and webMethods is now second only to IBM in terms of both traditional integration and SOA capabilities. This is a market share play and a SOA play entirely. Software AG gets a much stronger North American presence and they can now leave the likes of TIBCO and Oracle in their dust. Mark my words, [Oracle chairman] Larry Ellison is not going to be happy about this news."
The deal significantly strengthens Software AG's technology for SOA and BPM, which will now include the registry/repository and governance products webMethods acquired with its purchase of Infravio Inc. this past summer, added Ron Schmelzer, senior analyst with ZapThink.
"First, the company further bolsters their SOA infrastructure capabilities by adding greater capabilities in the integration, process, and governance areas," Schmelzer said. "They also inherit the advanced capabilities of Infravio for registry/repository and metadata management that webMethods also saw as high value."
In the fierce marketing battle surrounding SOA/BPM products, taking over webMethods with its established presence in the U.S. will give the German-based vendor as major boost in the North American market, Schmelzer added.
"Most importantly, this acquisition gives Software AG the visibility in front of potential customers and partners that they didn't have on their own," the analyst said. "The company is now a major force in the SOA industry and can easily compete against any other market player in the industry."
Schmelzer even suggested that the SOA/BPM market may be "witnessing the emergence of a new mega global brand" that would rival IBM's WebSphere.
"Combining our product portfolio and sales team with those of webMethods gives us a major foothold in the critical North American market," Streibich said in the announcement. "The webMethods' Fabric product family combined with Software AG's Crossvision SOA suite will provide an end-to-end SOA solution that allows our combined client base to more effectively create, manage and govern their business processes."
Brad Shimmin, an analyst with Current Analysis,agrees with the ZapThink analysts that the deal make marketing sense, but sees some duplication and waste in technology.
"Technically the acquisition creates a lot of wasted software as both companies maintain overlapping products such as a registry/repository, tooling for developers, integration and application servers, etc," Shimmin said. "Of course, the acquisition will allow Software AG to let go of its registry/repository, which it co-owns with Fujitsu and instead leverage a very advanced product set from webMethods, namely X-Registry and X-Broker. webMethods had acquired these from Infravio last year and had recently rationalized them into the Fabric product family."
Anne Thomas Manes, vice president and research director Burton Group Inc., agreed that there is product overlap but disagreed about the value of the Infravio technology versus the CentraSite registry/repository Software AG already has.
"I seriously doubt that they will maintain both products indefinitely," she said. "The products are pretty similar in design and architecture. They both implement the UDDI data model with extensions to support metadata and lifecycle management. The Infravio product is bit more mature in terms of contract and policy management. But I don't think it's so much further ahead of CentraSite that it makes a difference. The Software AG ESB suite is integrated with CentraSite. The same is not true between webMethods Fabric and Infravio. Therefore I predict that CentraSite will emerge as the winner."
Matt Durham, vice president, market development for Software AG said the company sees more synergy possibilities than duplication, although because of government regulations he was limited in what he can say until the deal closes at the end of June. On completion of the deal Software AG will evaluate how the products fit together, he said.
"We thought very carefully about the product portfolios in the deal," Durham said. "But right now we're not in a position to say which products will be enhanced in which ways. What we know is that we have a couple of great product sets that really have differentiating capabilities. We want to take the very best of what both companies offer and create a compelling differentiation in the market."
As for the analysts concerns about product duplication, Durham said, "There isn't as much product overlap as it might appear on first blush. In the core SOA governance area, in terms of SOA registries and repositories Infravio is a great product, CentraSite is a great product and we think the very best of both products can be exploited very positively for our customer base."
In the "near term" he said there will be no change to either the Infravio or CentraSite products. In terms of Manes' concerns, he said, "Clearly they have a reg/rep and we have a reg/rep. I think the differentiating capabilities that CentraSite has versus the differentiating capabilities of Infravio might be a little bit different. Architecturally they are very similar. They are both built on JAX-R, which is great. It should make it much easier to help customer who might have both. It's definitely an area we have to address and we look forward to addressing it."While he couldn't provide a product roadmap today due to government regulations, he said there are future areas where customers can expect to see Software AG focus.
"There are very clear areas where we see the need for a future focus," Durham said "For instance, SOA security and SOA testing are emerging as very important areas that I'm sure developers and architects are taking very seriously. These are areas we want to focus on."
Together, Software AG and webMethods will have a global customer base of more than 4,000 organizations, the announcement said. The acquisition will be a major step in the German vendor's previously stated plans to double its annual revenue to $1.3 billion.
While acknowledging that the deal will help Software AG reach that goal, Manes figures webMethods won't deliver huge revenues in the immediate future.
"From a financial perspective, I think webMethods is undervalued," she said. "It was trading at about $7.25 yesterday, so Software AG offered a premium price at $9.15/share. But $546 million is just a little more than 2.5 times revenues. Annual revenues as of March 2006 were $209 million, and it's got a good ratio of license vs. services revenues. It's shown steady growth for the last three years, although growth has been slowing down this year. Revenues for the past three quarters were only slightly higher than the previous year."
Durham said valuation of the deal is not easy to quantify, but noted that Software AG's stock was up 7.7 percent today in Germany, indicating enthusiasm for deal. He said Software AG also is promising its customers and employees that "nothing changes" as a result of the acquisition and that the company considers the webMethods customers and employees to be a valuable part of this deal.