Deal Focus: Software AG acquires Terracotta

Software AG, a provider of business process management solutions, announced today that it agreed to acquire Terracotta, a developer and marketer of software for application scalability, availability and performance (deal value undisclosed). Terracotta, founded in 2003, has development centers in San Francisco and New Delhi and offers commercially licensed open-source software, including the Ehcache Java cache and Quartz scheduler. The acquisition is Software AG’s first significant open-source business acquisition and will act as a foundation for its in-memory and cloud offerings.

The acquisition provides Software AG with cloud solutions that increase the performance and scalability of its Business Process Excellence platform. Terracotta’s product portfolio provides in-memory technology that can function 1,000x faster than database access, which will enable Software AG to increase revenue with existing and new customers in the areas of event processing, mobile technology, cloud distribution and virtualization. The deal also gives Software AG a position in open-source technology.

Two recent acquisitions boosted Terracotta’s strength as a top target for acquisition: in February, the company acquired a new Ehcache Search API designed to provide additional insight on application performance, while in 2010, the company purchased BigMemory, an Ehcache add-on module designed to overcome the memory and garbage-collection limitations of Java applications. Terracotta raised over $23 million in funding from investors including Accel Partners, DAG Ventures, Benchmark Capital and Goldman Sachs.

This isn’t the first acquisition driven by scalability and performance in the cloud. One year ago, VMware acquired GemStone Systems, which provides software that caches data across a server cluster to help scale applications. Cloud computing remains a hot topic and more companies are getting into the game – just last week, SAP launched a cloud-based platform for its HANA (High-Performance Analytic Appliance) in-memory computing technology. The need for increased scalability and performance for companies that are finding their software installations growing in size (such as Software AG), will drive M&A in this area. We expect to see a handful of similar acquisitions occurring over the next few years as cloud continues to become the industry standard.

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