Software AG to grow Asian presence

Software AG's acquisition of webMethods this week is expected to boost its footprint in the Asia-Pacific region, experts say.

In an interview with ZDNet Asia, John Brand, research director at analyst company Hydrasight, said Germany-based Software AG's US$546 million purchase of webMethods is a major step toward greater penetration of the Asia-Pacific market. Subject to regulatory approvals, the transaction is expected to close in the second quarter of 2007.

Brand said: "Software AG hasn't had a big footprint in the Asia-Pacific market [and] has few major deals on the whole."

In comparison, he noted that webMethods has amassed a good selection of blue chip customers and has a stronger brand than Software AG in the region. Both factors are beneficial to Software AG, Brand said.

In an e-mail interview, John O'Malley, Software AG's general manager for Asia-Pacific and Japan, said the region--which includes Australia--contributed 6 percent of the company's worldwide revenue in 2006.

O'Malley declined to comment on revenue projections because the acquisition of webMethods is yet to be finalized, but said the move will bring about a larger customer base for Software AG. "This will provide opportunities for us to cross-sell and up-sell our SOA (service-oriented architecture) solutions, [which] also means that we can expect our revenue and profit to grow."

Ian Charlesworth, an analyst at research company Ovum, said in a statement that customers can also expect to benefit from the combined portfolio of products from both companies.

Charlesworth said the impending acquisition will result in "an extremely broad and deep set of capabilities, from legacy modernization through application integration, process management, SOA governance, business activity monitoring and process optimization".

"The company has previously stated its commitment to strengthening its position in the SOA space, and it was always likely that this would require an acquisition or two in order to deliver sufficiently rapid growth," he added. "By acquiring webMethods, Software AG gets its hands on some of the most progressive SOA integration technology in the market."

Given the complementary nature of Software AG's and webMethods' businesses, Software AG said it expects to "recognize synergies through both revenue enhancement and cost savings".

Software AG CFO Arnd Zinnhardt said in a statement: "We expect this transaction to be strongly accretive to Software AG's operating earnings from 2008 onward."

According to Charlesworth, webMethods has been ripe for acquisition for some time. He noted that the company experienced a number of consecutive disappointing quarters, failing to deliver adequate license revenue growth. "This, we feel, was more down to sales and distribution challenges as opposed to deficiencies with the product set," he said.

In a research note, Gartner said Software AG will face challenges integrating the webMethods acquisition because the German company lacks a track record in managing an acquisition of comparable size, in terms of retaining key technical, marketing and sales people.

O'Malley, however, said: "Software AG has extensive experience integrating acquisitions and if we are successful in acquiring webMethods, we will work in tandem with professionals from webMethods to ensure the transition is as seamless as possible."

"We will set up an integration team that includes representatives from both organizations," he said. "We anticipate there will be some changes in both organizations as a result of the combination. It is also anticipated that talents from technical, sales and marketing will remain intact and merged over time, selling a merged SOA offering."