Germany's second largest software house is facing the most massive restructuring in its recent history.

On Tuesday night, Software AG announced that it would bring American technology investor Silver Lake on board, inject more than a quarter of a billion euros in capital and accept a change in the top position on the supervisory board.

This is intended to give the Darmstadt-based company's business, which has been economically stagnant for years, new momentum and to re-embark on the growth path that has long been envisaged.

Stephan Finsterbusch

Editor in business.

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However, these prospects were not well received by the stock market.

The price of the share fell by around 11 percent and was quoted again at significantly less than 35 euros over the course of trading.

The price of the paper had soared for the first time in late November, when speculation in the market had shot up that the company could be put up for sale.

Around 30 percent of the shares are held by the foundation of founder and computer scientist Peter Schnell.

He launched the company with five partners at the end of the 1960s.

Today Software AG offers programs and digital data services for the control and administration of production processes and entire companies.

The transformation should be carried out more resolutely

Silver Lake is considered one of the major investors in the technology industry. The fund is already invested in companies such as the computer manufacturer Dell, the Chinese Alibaba group and the IT security provider Symantech. In Europe he is involved in the Swedish payment service Klarna, the delivery service Getir, the SAP company Qualtrics and the travel platform Omio. Silver Lake is fixated on profit maximization and is known for its determined and shirt-sleeved approach. The Americans are now adding Software AG to their portfolio.

To do this, they will subscribe to a subordinated and unsecured convertible bond issued by the Germans. According to a company announcement, the paper will be due in early 2027. Until then, it bears interest at 2 percent and has a conversion price of 46.54 euros. The conversion into shares could make Silver Lake the second largest shareholder with up to 10 percent of the total capital of the Hessian software company. On the other hand, Software AG is now getting 344 million euros into the coffers. The board wants to invest this money in the targeted growth. Acquisitions are to be driven forward and the next phase of the renovation that began three years ago should begin - albeit with more determination than before.

In the words of CEO Sanjay Brahmawar, Software AG has not gotten where it is for years.

Last year sales fell by 6 percent to 835 million euros.

From July to September sales rose for the second quarter in a row, but for the year as a whole the medium-term target of more than one billion euros will again be missed.

With quarterly sales of almost 200 million euros most recently, the company with 4700 employees around the world is far from its promises.

Opportunities also have to be seized

Brahmawar's predecessor had already targeted annual sales of more than one billion euros, was able to achieve the goal once, but then fell back below its own target for years. That has to change in the near future, says Brahmawar. That’s why they won Silker Lake. “It wasn't about the money,” he says. "We have 500 million euros in the box." It is more about prospects and an improved appearance, especially on the North American market, where you are playing far below your possibilities.

The entry of the Americans and the associated injection of capital also has its price.

Karl-Heinz Streibich, the previous chairman of the supervisory board, and Ralf Dieter, the previous chairman of the board's audit committee, will take their hats with effect from January 31.

A replacement should already be found: Jim Whitehurst, former CEO of the IT company Red Hat, and Christian Lucas, Managing Director and jointly responsible for Silver Lake's European business, will join the supervisory board.

Lucas will appear to be chairman of the board.

On the way to a better future

Brahmawar stated, "Christian Lucas and Jim Whitehurst will add valuable expertise to our board of directors as we grow through new partnerships, investments and acquisitions." CFO Matthias Heiden stated, "We are bringing a first-class technology investor on board." Or Silver Lake one more He left it open: "From today's perspective, I cannot judge how a new investor will behave over time."

The analysts at the Warburg investment bank left their rating for Software AG at “Hold” after the partnership was announced.

They rated the target price at 38 euros.

The fact that the company now has Silver Lake on board is an admission of missed opportunities after a decade of dreary growth and price stagnation, wrote Andreas Wolf in his analysis.

A return to the growth path should, however, have a positive effect on the share.