Ranadive argued that Software AG’s acquisition of the integration and SOA management firm was a case of tying two stones together and hoping they will float.
This comes as no surprise, Ranadive told Computer Business Review. [WebMethods] had a weakened brand and a declining business. I think Software AG is buying their customer list but even that has limited value as I think their customers will want to keep their options open.
Their brand has been devalued, their technology is largely obsolete and most of their good people have already left, added Ranadive. While we have been growing they have been declining.
In its latest quarter ended December 31 2006 webMethods posted total sales of $53.1m, up just 1%. But new license sales actually fell from $22m in the year-ago quarter to $19.7m, leaving maintenance and professional services revenue to pick up the slack. Furthermore, webMethods posted a net loss for the quarter of $5.7m, compared to net income in the year-ago quarter of $5.5m.
Asked whether Tibco had been in the running to acquire webMethods, Ranadive said, I can’t comment directly on that. But they would have represented little value-add to us, and we see many other opportunities to focus on. I would note that their business has been really weak.
Ranadive said Tibco is absolutely delighted by the news of webMethods’ acquisition by Software AG: We have a healthy cash flow and strong balance sheet, he said. We have a wide spectrum of opportunities and we are focused on all of them. This is great news for us.
As we reported on the announcement of the deal, Software AG said the deal will be earnings neutral in 2007, and accretive in 2008.
WebMethods CEO David Mitchell hinted that the company had several suitors, stating during an analyst call that Software AG’s [offer] was the most compelling. He claimed that the increased global presence through Software AG helped seal the deal.
Software AG plans to retain the webMethods management team, including Mitchell. The headliner is that this deal is a partnership for growth, scale, and synergy. It’s not only about cost structure, said Mitchell.
Software AG CEO Karl-Heinz Streibich referred to the fact that both companies have relatively little product and regional overlap, and said he sees webMethods’ SOA business as the linchpin for future growth beyond its mature mainframe software business.
Our View
Ranadive makes some valid points, particularly when it comes to webMethods’ growth trajectory. He has reason to be bullish. While webMethods has had a tough time of late, Ranadive’s Tibco managed to post sales for the fourth quarter of fiscal 2006 of $161m, up almost 20%, showing once again that Tibco has been able to leave webMethods and numerous other competitors in the integration space in its wake.
The cultural differences between the German Software AG and US-based webMethods are another reason Ranadive has to be reasonably confident that integration of the two companies will not necessarily be straight-forward.
On the other hand, we believe webMethods’ recent acquisition of Infravio was an inspired move that gave it much-needed strength in the registry/repository and services governance space, and it could well have helped webMethods claw its way back to the top table given some time. Trailing red ink and struggling to achieve consistent growth though, time was not on its side.
However you regard webMethods’ past financial performance, we believe that its acquisition by Software AG was about the best thing that could have happened to it given the few technology overlaps and good geographic fit. Under CEO Karl-Heinz Streibich, Software AG once again appears to be a force to be reckoned with, and this acquisition will bolster its portfolio no end and add some much-needed coverage in the US.
Heniz-Streibich made an interesting point that, even if the combined company doesn’t add new sales, it has thousands of existing legacy customers that represent open opportunities for the combined product base. If the webMethods offerings help Software AG round out the SOA stack, that could become a potentially a fat revenue stream.
Also, while we agree that webMethods has struggled recently, we note that Software AG saw revenue growth of 10% to 482m euros and income of 73m euros for the year ending Dec 31 2006. Tibco undoubtedly remains a tough competitor, and Software AG’s acquisition of webMethods has its challenges. But we disagree that there are two stones being tied together here.
One final point: There is actually more product overlap between the companies than first meets the eye. The obvious example is BPM, where webMethods has an offering and Software AG partners with Fujitsu. Other examples include the registry/repositories of webMethods’ Infravio acquisition and Software AG’s CentraSite, plus the SOA application composition pieces (Software AG Crossvision Application Composer and webMethods Fabric). So the combined company will face some challenging decisions on how to converge similar product lines. However, given the realities of software industry consolidation, this is hardly the only deal that faces that challenge.
