Software AG squares up to SAP with IDS Scheer buy

Deal creates major new player in business process management.

Software AG is to purchase German business process modelling company IDS Scheer for €487m (AU$857m), in a deal that analysts have said could be a major blow for SAP.

The acquisition is for 48 per cent of the firm's total stock and will establish a new global player in business process management, according to Software AG.

"Software AG's strengths: technology leadership in middleware, financial strength and global presence, will complement IDS Scheer's strengths: the modelling, implementation and controlling of business processes, a strong partner network and a large presence in the approximately 7,500 customer base," the firm said in statement.

Software AG is Germany's third largest technology company, and taking over the country's second largest will more than double its customer base, giving the firm more than 6,000 employees and approximate revenues of €1 billion (AU$1.76 billion).

IDS Scheer will give Software AG a strong presence in the SAP consulting business, allowing it to offer the integration of SAP solutions in heterogeneous application landscapes.

Forrester senior analyst Stefan Ried, who was previously Software AG's vice president of products, maintained that SAP missed out on the buy and will face stiff competition as a result.

"SAP customers can now either go to SAP for integration and support services or to those offered by Software AG's new purchase," he said.

Ried added that IDS Scheer was up for sale because it lacked a "global extension strategy", explaining that service companies have trouble marketing themselves globally, while companies with large product revenues can do so through overseas integrators and partners.

Software AG has wanted to build up its consulting services division for a long time. The company has reconstructed most of its business over the past six years apart from this one area.

"Even though IDS Scheer is positioned as a software product company, its dominant business is services and only 19 per cent of the firm's revenue comes from product sales," said Ried.

This compares to around a third of Software AG's revenue stemming from product sales and the rest from service offerings.

IDS Scheer helps business analysts document and manage business processes. Ried said that Software AG's European market would particularly welcome the purchase because it tends to prefer customised solutions to packaged offerings, in stark contrast to the preferences of customers in North America.

"With the merger of two technology leaders we will create a globally significant company. Our expertise in business process management will be unique and will increase our competitiveness in this growth market," said Karl-Heinz Streibich, Software AG's chief executive.

"We want to drive the strategic development of the company even in economically difficult times."

SAP could not immediately be reached for comment.