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Software AG to acquire BPM vendor IDS Scheer

Middleware giant Software AG bought a 50% controlling stake in IDS Scheer, the vendor announced today, leaving questions about how SAP will respond.

Software AG today announced that it intends to acquire business process modeling (BPM) vendor IDS Scheer, a partnership that should prove a good deal for customers, according to analysts.

Software AG said it bought a 50% controlling stake in IDS Scheer, the first step in an eventual public offering for all of IDS Scheer. Software AG expects the deal to be completed by the end of the third quarter, according to Peter Kurpick, chief product officer and executive board member.

"IDS Scheer is No. 1 in modeling and [Software AG] is among the key players when it comes to putting process modeling into execution," he said. "We put our forces together to become the strongest company when it comes to any level of process automation. We have the whole food chain."

With IDS Scheer's large SAP installed base -- one analyst estimated it at 60% -- the move has prompted questions as to why SAP didn't buy IDS Scheer and how SAP will react to the companies' combined middleware and BPM prowess.

As integration and BPM continue to top the list of customer concerns, there has been speculation in the market that SAP was getting ready for an acquisition, and both Software AG and IDS Scheer came up on the list.

In fact, not rattling SAP customers or their other partners too badly was the reason Software AG didn't acquire IDS Scheer outright straightaway, according to Clay Richardson, senior analyst at Cambridge, Mass.-based Forrester Research.

"I think it really will raise the eyebrows of SAP in the end," Richardson said. "It wouldn't be far-fetched to see SAP acquire both these companies down the road."

But Software AG said the deal will only strengthen its relationship with SAP.

"That is something we will leverage even more today than before," Kurpick said. "SAP uses IDS Scheer big time. We will become even more than today a very a strong partner to SAP."

Software AG will keep IDS Scheer's ARIS BPM platform as an independent entity, Kurpick said, and customers won't see any significant changes in the short term.

The partnership should lead to better business process software, analysts agreed. Combining webMethods and IDS Scheer's business process modeling tools, the two working together could come up with a solid middle ground -- a tool that's good for the business side but technical enough to capture all the detail that's needed.

It gives Software AG a tool to battle the increasing footprint of SAP and Oracle in their "sweet spots," AMR Research vice president Dennis Gaughan said.

"It's going to elevate Software AG to quite a position of strength relative to SAP and Oracle," Gaughan said. "We certainly see a lot of interest in the BPM modeling that IDS does. It's a smart buy."

It's all part of consolidating middleware tools in the market, according to Ray Wang, vice president, principal analyst at Forrester Research. It makes a lot of sense, he said, given the fact that middleware platforms are very important for integration, and especially in light of concerns over integrating hybrid deployments of Software as a Service (SaaS) and on-premise.

"It's going to bring together the other pieces of the middleware platform they don't have," Wang said.

"[The deal creates] a global vendor of infrastructure software and business process management with more than 6,000 employees and more than 1 billion euros in sales," according to a press release issued by Software AG.

"IDS Scheer offers deep industry expertise in vertical industries, direct access to vertical markets and a strong position in the SAP consulting business," the press release states. "The combination of both leading [technology] and complementary product portfolios for the digitization and implementation of business processes will be unique and will give Software AG a sustainable and strengthened competitive position in a consolidating software market."

The deal is aimed at increased sales of the combined product offering and the specialist expertise of IDS Scheer's consultancy for implementing SOA and BPM products, according to the release.

Software AG will pay 15 euros, about $21, per share for 15,332,622 shares. That's a premium, as IDS Scheer's shares closed yesterday around 11 euros, or about $15, a share.

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