Can you speed up the teleprompter please? Software AG held a call today to discuss their acquisition of WebMethods.Â None of the presenters could muster much genuine enthusiasm for this deal.Â However as transactions go it’s certainly well-grounded in terms of the numbers.Â
Prior to the call we had been noting Software AG with some interest thanks to fairly strong execution and an attractive valuation.Â The company has a strong mainframe and maintenance legacy but has been working on a growth strategy with their CrossVision product line.
The call was consistent with a fairly low profile and offered the usual rhetoric around "strengthens Software AG in the US and strengthens WebMethods in Europe" along with "this merger of two leading companies creates a powerful player."
Financially the deal was done at a low valuation at $546M for a company with about $200M in cash and $200M in TTM sales.Â Guidance is that the deal will be neutral to 2007 numbers and accretive to 2008.Â [No explicit numbers were given but there was some mumbling at the very end of the call about adding 10% to earnings in 2008.Â It was unclear whether this is just a general view or related to the acquisition.]
From a market positioning standpoint the companies are looking to combine SOA and BPM to provide SOA Governance, Monitoring, Composition and so on down the line.Â The combined company will have just over 60% of revenues in maintenance and professional services and 30% license revenue.
As it stands the transaction is expected to close in June but there seems to be quite a bit of focus on other potential offers and whether or not this was a competitive process.Â At 1.5x net TTM sales (net of cash) the deal is at the low end of software transactions.Â
U.S. analysts and investors will be happy to have WEBM off their coverage lists and out of their portfolios.Â Few, if any, are likely to take up SAG in the near term but Software AG execution in 2H2007 could make a difference.Â Will there really be an upsurge in operational vitality in the U.S. vis a vis Software AG products?Â Will we see some differentiation from better product integration between Software AG and WebMethods?Â Are there any new products or technologies in the works that are likely to help the combined company gain market share versus other market players that seem to have stronger solutions?