SoftwareAG acquiring IDS Scheer: deal detailsAll cash offer €477 million (net of IDS Scheer cash is €387 million)Debt to be repaid in 2-3 yearsContracted shares today 48%Tender process for remainder expected to start August and close Q3 2009Expected to be operating EPS accretive in 2010The questions hanging in the air throughout this afternoon's quickfire analyst call were:How this will impact the relationship with SAP, SoftwareAG's number one partner and customer?
All cash offer €477 million (net of IDS Scheer cash is €387 million)
Debt to be repaid in 2-3 years
Contracted shares today 48%
Tender process for remainder expected to start August and close Q3 2009
Expected to be operating EPS accretive in 2010
The questions hanging in the air throughout this afternoon's quickfire analyst call were:
How this will impact the relationship with SAP, SoftwareAG's number one partner and customer?
Peter Kurpick, chief product officer said: "WebMethods is the most tangled product with SAP since 2000 and that isn't changing. We always claim we have a level of neutrality with SAP being our most important customer and partner. We've had a conversation with Leo Apotheker (SAP CEO) an Jim Hageman Snabe (SAP executive board member responsible for technology) and they are fully supportive of what we are doing. But the same will go for Oracle, IBM and TIBCO.
SAP knows that it is hard for them to extend process innovation beyond SAP in certain markets where SAP is not 'wall to wall' for example banking. They know they need other partners."
Is the company up for sale?
"We have repeatedly said that SoftwareAG is not up for sale and with some 30 percent of the company's stock in one of the founder's hands, it is very difficult, if not impossible to engineer an acquisition without the agreement of that stock. That means we are not an attractive acquisition target."
Analysis and question marks
Colleagues in Europe who work with SAP software day and day out were stunned by the news, considering that SAP has missed an opportunity to acquire IDS Scheer as a lever for perhaps acquiring SoftwareAG further down the track. As it stands, the enlarged SoftwareAG is looking like an attractive and important tool as part of SAP's composition environment for orchestrating processes among different components. It therefore should be no surprise that SAP's board is expressing support for this vendor neutral company.
In product sessions I have attended, the perception is that SAP is still relatively early in the BPM space and that if it had made a pre-emptive strike then that would solve many problems for SAP as it rolls out its new products. It also helps the company make good on its promise to extend processes outside customers' firewalls. As we stand today, the momentum has shifted towards SoftwareAG and even though there is significant mutuality between the two companies, it is SoftwareAG that is looking the more powerful partner.
Another question that colleagues raised was why SAP didn't jump in first or over the SoftwareAG offering. With 48% of IDS Scheer's shares in the bag, SAP could not realstically mount a challenge without risking any transaction becoming dilutive - the last thing it wants right now. My own theory is that SAP was slow to recognize the value of the opportunity and was concerned not to overpay given that analysts have been critical of the BusinessObjects acquisition for exactly that reason.
As the deal comes to completion, the questions will continue to be asked and it is certainly an area I plan to explore with Vishal Sikka, SAP's CTO when we meet later this month, along with questions about what this means for future development around the Galaxy process tool.
The acquisition of IDS leaves SAP with no viable options to shore up the NetWeaver stack other than to look at Informatica or Software AG, though it’s been rumored for some time that SOA Software was on their target list. Rumors have also been rampant about a potential SAP acquisition of Software AG. In addition to regaining control of the IDS Scheer modeling capability, there are additional factors that could make such a move beneficial for SAP. For example, replacing NetWeaver XI/PI with webMethods would solve a persistent problem of interfacing SAP applications with the outside world. It would also provide native EDI capability that SAP customers must currently obtain via SAP partnerships with CrossGate and Seeburger.