04.10.07
Hands Across the Water – Part II
We were a bit surprised with all the comment that we received over our first reaction to Software AG’s bid to buy webMethods. As we noted, on paper it’s potentially a great deal – but some folks thought that we were criticizing the deal by pointing out the challenges.
Let’s be clear – sizable deals that involve some overlap are always going to be a challenge. That’s just plain inevitable in a consolidating industry and it’s no different here.
But we don’t agree with analysts like Neil Ward-Dutton of Macehiter Ward-Dutton that this is a circling of wagons paring a couple midsized has-beens coasting on maintenance revenues. As Beth Gold-Bernstein points out, there is excellent potential upside when you look at both companies’ product portfolios. She’s written probably the most extensive analysis of how the lines are likely to stack up should the deal close.
Clearly both companies are in transition, although obviously Software AG is certainly in much better financial position to make the journey. And even if the bulk of its base were legacy maintenance, that still translates to a large potential market for service-enabling if it has the right product. As for webMethods, because its Q4 numbers haven’t come out yet, we don’t know whether it has gotten out of the woods (it had what looked to be the beginnings of a promising recovery early last year).
But what’s interesting on this go round is that Software AG intends to keep much of webMethods’ management in place. OK, part of the reason is for Software AG to boost its North American presence, but it also points to the likelihood that a number of webMethods SOA offerings are likely to take center stage (or dare we say, CentraStage?) in the merged company. A sleeper could be the Cerebra acquisition that webMethods made last summer, which could eventually transform the nature of service discovery.
So nope, we’re not critical of the proposed acquisition. We said that Software AG’s handling of BPM would be a key proof point. That’s because there’s potential overlap stemming from a highly promoted close partnership with Fujitsu that already has 60 customers (most of them Global 2000), and the BPM offering from the webMethods side.
After speaking with Fujitsu, we believe that even more strongly. They claim their product is functionally superior to the webMethods offering. But at the same time, they also see a great potential pairing with webMethods’ BAM product.
Obviously Software AG can’t say anything yet on what its BPM strategy will be. But once the smoke clears, we’ll want to hear.
Neil Ward-Dutton said,
April 10, 2007 at 11:49 am
Tony, I think you’ve taken a bit of a liberty with your paraphrasing there. What I said about both wM and SWAG was that they’re both currently living more off their past successes than their current successes. I think that’s pretty hard to disagree with when you trawl through the SEC filings.
As it happens I think we agree on the main points here. There is strong potential upside in that the geo footprints of the two companies are largely complementary. There will be some tricky manoeuvring required to pull together a coherent and consistent product and technology story, given SWAG’s recent repositioning and the partnership with Fujitsu.
I, like you, will be looking very hard at webMethods’ 10-K for FY07 and also to see how SWAG positions the combined roadmap once it comes together.
Ronan Bradley said,
April 10, 2007 at 11:56 am
Tony,
You shouldn’t feel it is necessary to clarify your views. Any analysis that did not point out the huge issues around this acquisition is worth little – cheering may be fun but it is hardly the role of an industry watcher!
As you state, there are clear challenges for Software A.G. in getting maximium benefit from the acquisition. From a technology point of view, this is only going to work if Software A.G. adopts the approach of building on one stack or the other and webMethods has the clear edge. However, that requires hard decisions from Software A.G.: To ditch its own IP and probably kill the Fujtisu partnership as well. As you point out, keeping the webMethods management team in place is a key indicator that they may be willing to do this. However, we will have to see how long they stay in place and when announcements emerge clarifying future direction.
My Lustratus colleague, Steve Craggs goes further on this train and thought and suggests that SAG should go the whole way and rename the company webMethods (more from steve on the acquisition is at http://blog.lustratusresearch.com/litebytes/2007/04/software_ag_to_.html)!
Ronan