Software AG To Buy WebMethods

The deal furthers a consolidation trend among companies developing enterprise application integration (EAI) software and other middleware components, which are increasingly facing pressure to get big or get bought. With giants like IBM, Oracle and SAP pushing customers to use their middleware stacks, the market is commoditizing, leaving pure-play vendors in a precarious position.

WebMethods, founded in 1996, was a pioneer in the EAI market, but its fortunes have shifted along with those of the IT industry. The Fairfax, Va.-based company's license revenue has dwindled over the past five years, from a high of $121.8 million in 2002 to $84.4 million in 2006. The company offset that erosion by growing its maintenance and services revenue. Last year, it reported total revenue of $208.8 million, a record high.

Software AG, based in Darmstadt, Germany, will pay $9.15 per share for WebMethods, a 26 percent premium on WebMethods' share price. Pending regulatory and shareholder approvals, Software AG expects the WebMethods acquisition to close this quarter.

Software AG said the deal will double its North American customer base and create a broad portfolio of SOA and business process management (BPM) products.

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Software AG is among the vendors looking to survive the software crunch by scaling up. In February, it announced "the most ambitious expansion program in the 37-year history of the company," with a goal of increasing its annual revenue to EUR 1 billion (US$1.3 billion) by 2011, up from EUR 483.0 million (US$648.7 million) in 2006.

Acquisitions will be a key part of Software AG's expansion. The company has assembled a war chest of up to EUR 700 million (US$940 million) in cash and credit to fund its shopping.

"Software AG will be a driver behind consolidation in the fragmented integration IT market," the company said in statement on its expansion plans.

Last month, Software AG spent EUR 46.3 million (US$62.2 million) to acquire a majority stake in one of its Israeli distribution partner, SPL Software.