Software AG is allegedly examining a multi-billion dollar sale

Software AG logo

The Darmstadt-based company is the number two German software company after SAP.

(Photo: dpa)

Berlin Software AG is one of the largest software manufacturers in Germany, but the company has been standing still for years. According to Handelsblatt information, management is now examining strategic options – a sale is also conceivable. The company is advised by an investment bank. First, the Bloomberg news agency reported on the plans.

The deliberations are at an early stage – the board of directors must always consider options in the interests of shareholders. It is therefore unclear whether there will ultimately be a sale. The foundation of company founder Peter Schnell, which holds 31 percent of the shares, is likely to be an important factor in such plans.

Despite these reservations, the price of the MDax group rose by more than eight percent to more than 37.50 euros on Friday morning in a difficult market environment. The market value is just under 2.8 billion euros.

CEO Sanjay Brahmawar is currently realigning Software AG. In the course of the so-called “Project Helix” he wants to strengthen the future business, which includes technologies for the analysis of business processes, the evaluation of large amounts of data and the integration of various programs in an organization.

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Software AG is also converting its business model to subscriptions, as is common in the technology industry. This ensures more predictability in the long term and, in the best case, more lucrative customer relationships, but in the short term it costs sales because the income now comes piece by piece. At the same time, the board is working on a cultural change in the 50-year-old organization.

Software AG: Big promises, but investors are skeptical

Software AG still has a lot of work to do. In the third quarter, the company disappointed shareholders by lowering the targets for the “Digital Business Platform” with the new technologies.

However, the management promises that there will be an acceleration in 2022. By 2023, sales are expected to rise to one billion euros and the operating margin to 25 to 30 percent. In the two to three years thereafter, sales of 1.5 billion euros are possible, Brahmawar said at the capital market day in February.

Shareholders, however, view Software AG with some skepticism; the group has repeatedly disappointed expectations in recent years. There is definitely potential for price increases: Analyst Knut Woller from Baader Bank expects growth to pick up in the new year and thus improve margins. This was not reflected in the course before the takeover speculations.

Multiple options for a sale

If Software AG actually aims to sell, there are several options. On the one hand, a withdrawal from the stock market could make the transformation easier, as management would then have to pay less attention to the capital market. An example of such a strategy was provided in the past by the PC manufacturer Dell, which is now listed on the stock exchange again.

On the other hand, a split would also be conceivable when selling to a strategic investor. Software AG has two divisions: The Adabas & Natural database business is very profitable, but is shrinking in the long term. The Group bundles future technologies that promise growth on the Digital Business Platform.

Last but not least, Software AG could benefit from a merger with a large corporation in order to assert itself in the highly competitive software market – the MDax company has well-known competition in many product categories.

However, a sale is only conceivable if founder Peter Schnell’s foundation loses faith in a successful reorientation of the company, emphasizes Mirko Maier from Landesbank Baden-Württemberg. “In view of the ability to suffer that has been proven over the past few years, this would be a rather surprising step for us.”

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