Continuing the trend of consolidation in the business-to-business software space, European software infrastructure provider Software AG today announced its agreement to acquire business integration software vendor webMethods Inc. in an all-cash transaction worth approximately $546 million.

On a conference call with analysts and investors this morning, the management teams of both companies discussed plans for a combined, complementary product portfolio that they hope will result in an end-to-end service-oriented architecture (SOA) platform for their customers and prospects worldwide.

The acquisition will give Software AG access to webMethods' strong North American customer base, and it will contribute to Software AG's plans to reach €1 billion in revenue by 2011, a figure that is more than double its current revenue, company officials said.

The deal will also provide financial support for webMethods, which saw an 11% drop in license revenue and a net loss of $5.7 million in its fiscal third quarter.

Officials said the combined companies' product portfolio will target specific areas in the emerging SOA space, including governance and enablement, business process management (BPM) and business activity monitoring (BAM), application integration, and legacy modernization.

The worldwide market for SOA technology is expected to reach $9 billion by 2009, according to market research firm IDC. The BPM market, meanwhile, is expected to hit $2.6 billion by 2011, according to the research firm.

SOA technologies provide a means for companies to connect disparate business processes and software systems through Web services. The concepts underlying the technology, although still mysterious to many potential users, have gained mind share among an increasing number of organizations seeking faster application development processes and lower integration costs, among other possible benefits.

"The buying behavior right now is really focused on registry and governance," said webMethods president and CEO David Mitchell, who will be retained by Software AG following the acquisition. "What was experimental and proof-of-concept last year has become fully budgeted and moving into production this year." He said that over time the adoption of SOA will resemble that of enterprise application integration (EAI), with BPM technology serving as the fundamental layer of a full-blown SOA strategy.

The company resulting from the combination of Software AG and webMethods would rank third among vendors in the SOA/BPM market, based on 2005 product license and maintenance revenues, Software AG CEO Karl-Heinz Streibich said. The top two providers are IBM and TIBCO, according to research from Gartner Inc., and 11 others, including Microsoft, Oracle, and BEA Systems, trail the new Software AG-webMethods conglomerate.

Mitchell acknowledged on Thursday's call that webMethods had a "challenging first half" of fiscal 2006, including some issues with product distribution. For the nine months ended Dec. 31, 2006, the company's total revenue was $149.9 million, compared with $149.4 million in the prior-year period. License revenue for the nine months was $48.8 million, down from $59.8 million year over year. And the GAAP net loss for the nine months was $15.5 million, or a loss of $0.28 per share, compared with net income of $7.6 million, or earnings of $0.14 per share, in the prior-year period.