Software AG, looking to strengthen its position in the legacy-software-conversion market, is acquiring an Israeli company and its tools for converting Cobol applications into software modules that can be used in a services-oriented architecture environment.

Software AG will acquire Sabratec Ltd., a privately held firm based in Tel Aviv, for $7 million. The acquisition is expected to be completed by the end of February. Software AG will establish a research and development facility in Tel Aviv built around the 20 employees it expects to retain in the acquisition. Sabratec founder Boaz Krelbaum will become CEO of the R&D operation.

Software AG already resells Sabratec's principal product, Applinx, Cobol-conversion software that takes several steps out of the process of modernizing legacy Cobol applications, says Joe Gentry, VP of enterprise transaction systems. The company will pay Sabratec's owners an additional $4 million if Applinx revenue targets are met, Gentry says.

Prior to Software AG's acquisition, Sabratech will transfer IntellinX to a new company owned by existing Sabratech stockholders; 25 existing Sabratech employees who develop, support, and market IntellinX will join the new company.

The acquisition is part of the ongoing consolidation in the legacy-system integration market. Last month Neon Systems Inc. spent $10.5 million to acquire ClientSoft Inc., another privately held mainframe-integration software supplier.

Software AG is one of a handful of companies that brings technology and expertise to the problem of modernizing legacy systems. It still sells Natural, a fourth-generation programming language, and Adabas, a mainframe relational database. It's added EntireX integration software and the Tamino XML database to its product lineup in recent years.

The integration field "has consisted of a myriad of small vendors that have struggled," notes a Gartner report issued this week. Software AG, IBM, and Microsoft are among the few companies with expertise in both mainframe systems and emerging Java and Microsoft .Net systems and the capacity to master integration strategies for major companies, the report says.

While Software AG can provide an alternative to IBM, the vendor will be challenged to grow substantially beyond its Natural and Adabas heritage, the report says.

Applinx allows developers to generate modules of code--without writing new code--that are available as a Web service or callable by other systems in a services-oriented architecture. The tool records the steps of a user completing a business process with an existing application. Applinx diagnostic capabilities capture the relevant part of the legacy system, allowing it to be reactivated as a service, Gentry says.

Gentry says Software AG expects to continue selling Applinx as a separate product in the $35,000 to $40,000 price range, plus a per-user fee that hasn't been determined but may fall around $200.