Frankfurt CEO Sanjay Brahmawar has a clear plan for the future of Software AG: He wants to continue to restructure the TecDax group off the stock exchange. Partnering with private equity firm Silver Lake can help the business reach its “full, long-term potential,” he said recently. The manager therefore supports a takeover bid by the Silicon Valley investor.
However, it is uncertain whether the plan will work: a takeover battle has broken out for Software AG.
A report from the Bloomberg news agency made the rounds on Thursday that Bain Capital had made a counter offer of around 34 euros per share, which corresponds to a valuation of around 2.5 billion euros. Shortly thereafter, Silver Lake improved its offer from 30 to 32 euros, which is below the rumored proposal of the competitor.
Software AG said Thursday it would continue to support Silver Lake’s plan. There was a “preliminary, non-binding offer from a US software competitor”. After examining various criteria – in addition to the price, for example, “transaction security” and “strategic sense” – the board of directors adjusted the offer price with Silver Lake.
Many shareholders are apparently assuming that the investors’ prize game is not over yet. Especially since, according to Bloomberg, the activist investor Elliott Management has also bought shares. Software AG’s price rose by around five percent on Thursday to more than 35 euros and was thus well above the two offers. The market capitalization rose to 2.6 billion euros.
Different plans for Software AG
The arguments make it clear: the two bidders are pursuing different concepts. Silver Lake has had a stake in Software AG for 18 months and basically supports the management’s course of “further developing the software manufacturer as an independent company with its headquarters in Darmstadt,” as stated in a statement on Thursday.
Under CEO Sanjay Brahmawar, Software AG – known and grown with a system for database management – focuses on fast-growing business areas such as data integration and process analysis. In addition, the IT group is changing its business model, as is usual in the IT industry, from selling licenses to marketing subscriptions.
However, the 54-year-old group is struggling with change. The technologies in the portfolio should be in demand in view of digitization. Despite this, the management has repeatedly missed the goal of increasing sales to the level of one billion euros for the first time since 2011. And the move to the cloud is far from complete.
At the end of 2021, Silver Lake joined to give Software AG new momentum. The investor knows his way around the IT industry: he was once involved in realigning the PC manufacturer Dell outside of the stock market. He is currently handling the purchase of the online market researcher Qualtrics, which previously belonged to the software manufacturer SAP.
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The prerequisites for taking over 50 percent plus one share are in themselves good. According to Silver Lake, it has secured 30.1 percent of the shares, 25.1 percent of which is via a block of shares from the Software AG Foundation, in which company founder Peter Schnell is considered the key person.
There is also a convertible bond from 2021, which could be exchanged for a ten percent share, but at a price of 46 euros. In his announcement on Thursday, the investor mentioned this as a possible option as well as a repayment.
Competitor’s merger plans
However, Bain Capital has other plans. The private equity company is the majority owner of Rocket Software, an American specialist for company software from the American East Coast – and according to Handelsblatt information from financial circles, is interested in a merger with Software AG. The portfolios complement each other well, they say.
The investor had placed his interest with the Management Board of Software AG some time ago, according to insiders from financial circles. In view of this, it was very surprising that the management board of the SDax Group did not seek alternatives as part of a structured sales process after Silver Lake’s offer.
Now Bain Capital is making itself heard with a counter offer. According to voting rights notifications, the investor has so far acquired 4.51 percent of the shares and secured a further 5.51 percent via so-called total return swaps, i.e. lending transactions with banks. So it’s a good ten percent in total.
There is speculation on the financial market as to how things will continue. Given the large package that Silver Lake already has, Bain Capital is unlikely to be able to acquire a majority stake in Software AG. A takeover battle would therefore make little sense. Several investors point out that a negotiated solution would make the most sense – whatever that looks like.
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