Software AG Buys Jacada's Legacy App Modernization Biz

Published: January 7, 2008

by Timothy Prickett Morgan

German database and SOA tool maker Software AG is paying $26 million to take a portfolio of application modernization tools off the hands of Jacada, which has been trying to boost its presence in the System i market for the past decade against some pretty tough competitors.

Software AG, which is best known for its Adabas database for IBM mainframes, its Tamino XML database and middleware for SOA-style applications, and its Natural development language for Web applications, has been gradually transforming itself into a contender in SOA development and integration. In April last year, Software AG shelled out $546 million to buy webmethods, which brought the Software AG customer base up to over 3,800 worldwide.

Jacada, which is based in the Atlanta stronghold of OS/400 applications, was founded in 1990 as Client/Server Technology and shipped its first product, called GUIsys, in 1994. The company did innovative work in creating a set of middleware and development tools that allowed RPG and COBOL applications written for the AS/400 to be given graphical user interfaces and brought to the Web. The company went public in November 1999, raising $49.5 million and then some follow-on dough in a secondary offering--just before the dotcom bubble burst. In the wake of going public, Jacada's shares were trading in the high $30 range, and like most other tech stocks, lost a lot of air through 2003. In 2003, as Jacada was moving into the specialty of modernizing call center software, the company's shares started to recover, holding fairly steady at between $2 and $4 a share for the past four years. As I write this on Friday, Jacada has a market capitalization of $76.2 million and has brought in about $20 million a year in sales during 2004, 2005, and 2006. The company lost $13.1 million over that time, which obviously did not make its shareholders happy. Last year was not looking much different, with Jacada posting sales of $16.7 million in the first three quarters of 2007 and racking up $2.4 million in losses. With $18.5 million in cash and equivalents in the bank in September and what is presumably a profitable and growing call center business, the company's managers decided it was time to let a much larger company push the application modernization products.

Software AG said in its statement announcing the deal that Jacada had approximately $12 million in sales for its legacy integration products in 2006, which include Terminal Emulator, Studio, Innovator, Interface Server, and Integrator (also known as HostFuse). Jacada has built up a sizeable and profitable business developing and modernizing call center software, and it wants to focus on this business. As part of the agreement with Software AG, Jacada retains the right to use and further develop for its own purposes any of these products, which it uses in that call center software business. Jacada is retaining ownership of its WorkSpace and WinFuse products, and Software AG gets another 200 customers who are using application modernization tools already.

Software AG is paying $22.5 million in cash to Jacada immediately, and is putting another $3.5 million in an escrow account. Jacada said in a statement that it would have approximately $60 million in cash after the transaction closed. Software AG has operations in the United States in Reston, Virginia, and its headquarters is in Darmstadt, Germany. The company is public and its shares are traded on the German SOW market; it had $637.2 million in sales in 2006, brought $96.5 million to the bottom line, and had over 2,600 employees as 2006 came to a close.

"With our unique heritage as well as our strength in SOA, Software AG is well-positioned to extend our leadership in the application modernization market," said Karl-Heinz Streibich, Software AG's chief executive officer in that statement. "For current Jacada customers, the acquisition is excellent news. Existing products will benefit from an expanded research and development organization with far greater financial resources. These customers will also enjoy access to a host of complementary products. This is also good news for Software AG as the acquired technology will further strengthen our position within an important market."

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