A year after the sale of its integration business to IBM cast doubt on the future of veteran German technology firm Software AG, the sale of further businesses announced yesterday sheds new light on the plans of its private equity owner, Silver Lake. Now renamed Software Gmbh to reflect its privately owned status — but still operating under the Software AG brand name — the company has today announced the sale of two remaining businesses, Alfabet and Cumulocity, to an undisclosed buyer or buyers, along with a restructure of the retained ARIS and A&N businesses and the departure of its CEO, Sanjay Brahmawar.
The sale of the Alfabet IT porfolio manager and Cumulocity IoT platform was already on the cards a year ago, as reported at the time by German news title Handelsblatt. Once Software AG had agreed to sell its Webmethods and StreamSets integration business to IBM, the logic of retaining these other acquired businesses as part of a broad digital business offering melted away.
IBM announced it had closed its acquisition in July last year. Meanwhile in April, the TrendMiner analytics tool, which Software AG had marketed as part of its IoT portfolio, was picked up by Proemion, a venture-backed German company specializing in industrial analytics, for just €47 million ($50m).
It’s not clear why it has taken so long to finalize the sale of Alfabet and Cumulocity, particularly since the deal has not been considered material enough to be announced at the time it was signed. One explanation would be that the buyer is a publicly listed company of a size similar to IBM — if not IBM itself. If the buyer or buyers become known in the next few days, we’ll update this story with the details.
What’s left of Software AG will now be operated as two standalone businesses, each with their own management, while the holding company will provide central functions. One will be Adabas & Natural (A&N), comprising the two mainframe tools on which Software AG originally built its fortunes in the 1970s and ’80s — the Adabas transactional database management system and Natural application development language. The other will be ARIS, comprising the process mining and modeling tool that was originally created by pioneering business process management company IDS Scheer, which Software AG acquired in 2007.
‘Almost nothing remains’
Sanjay Brahmawar, who joined as CEO six years ago to lead Software AG’s transformation from a legacy software vendor to a SaaS digital powerhouse, steps down as his current contract comes to an end. In a press statement, he comments:
It has been a privilege to lead such a well-respected company through many significant moments in its recent history, and to have worked with such a talented and committed team of professionals.
Those “significant moments” of course include the sell-off of almost the entire catalog of businesses that were supposed to be the basis of Software AG’s regeneration. In an op-ed published overnight titled Almost nothing remains of Software AG, Manfred Bremmer, Editorial Manager of leading German IT news title Computerwoche, describes these parting words as “not without a certain cynicism.” He is even less impressed by the statement from Christian Lucas, Chairman of the Supervisory Board of Software GmbH and Managing Partner of its private equity owner Silver Lake. Lucas says:
We want to thank Sanjay for driving the transformation of Software AG and are very grateful for his substantial contributions to the success of the company since we partnered with him and the Software AG team in 2022.
Computerwoche’s German readers will be particulary concerned for the fate of Software AG, which historically has been Germany’s second-largest software company after SAP, and its oldest, founded in 1969. Until Silver Lake bought out its stake last year, a significant shareholding had been owned by the Software AG Foundation, a charitable foundation set up by Dr Peter Schnell, Software AG co-founder and the creator of Adabas, to fund wellbeing research. The company remains an important employer in Darmstadt, where it has been headquartered since inception. Lucas adds these words intended to reassure those concerned for the future of the remaining businesses:
Looking ahead, we are excited to invest in both ARIS and Adabas & Natural and their world class products, and support their multi-year growth acceleration plans as independent companies.
The new management line-up at Software Gmbh are named as Martin Biegel, who joined as CFO last year, Martin Clemm, an Alfabet veteran who serves as General Counsel, Robin Colman, who has been SVP for Strategy and Corporate Development for the past six years, and Toktam Khatibzadeh, who joined as CHRO in April 2023. Leaders at the two standalone product businesses have not been formally named.
The company’s longstanding Chief Product Officer, Stefan Sigg, an SAP veteran who joined Software AG in 2017, announced his departure in July on LinkedIn. He had spoken to diginomica in April at the company’s EMEA conference. Sigg is now Executive Enterprise Architect at Everest, a venture-funded startup focused on AI-powered ERP for SaaS businesses, which launched with $140 million in funding in November.
My take
In recent years, the playbook for private equity buyers of legacy software vendors has been to swoop in, spend several years using the revenues from the legacy products to fund the transition to a cloud-based SaaS product set, and ultimately sell the transformed business at a substantial premium. As I wrote last year when discussing Silver Lake’s intentions for Software AG, “It’s typically more a case of fix-and-flip than break-up-for-scrap.” But in this case, it’s been the latter. And as I went on, this was probably inevitable:
The difference with Software AG’s core business is that it was never going to the cloud. Mainframes are inherently an on-premise platform, and that is where Adabas and Natural run — there’s no point in running them in the cloud except as part of a legacy migration project. Therefore diverting resources into building up a new portfolio of SaaS products was simply a distraction from the core business. It might have worked if it had gained enough escape velocity, but this was a tall order when there was so little synergy across the full breadth of the digital business portfolio.
In the end, the investment in building those other businesses has ended up producing a return for Silver Lake — the transaction with IBM alone repaid nearly all of what it had paid to buy the entire outfit, and the proceeds from Cumulocity and Alfabet will likely more than make up the difference — but the surviving rump of Software AG has wound up with very little to show for it. The two standalone businesses do, however, each have a solid product set and customer base. Stripped of the ambitions to build some new digital product empire, they have a decent chance of prospering as standalone businesses. But employees and customers will remain wary of Silver Lake’s future intentions. At some point it will seek to realize the rest of its investment returns and A&N and ARIS will end up under new ownership, quite possibly taking separate paths. For what remains of Software AG, the turbulence continues.
