Software AG is buying WebMethods for $546 million in cash, paying a 26% premium in hopes of becoming a more credible option for big companies building service-oriented architectures. The move should help, and give the German company a much stronger U.S. presence, but it still will be short of the size and breadth of the largest players.

Both companies in the deal, which needs shareholder approval, develop software that lets businesses link processes-- such as invoicing and shipping--to create more automated workflows. Software AG CEO Karl-Heinz Streibich touts the combined companies as a more credible rival to IBM and Microsoft, which lead the high and low ends of the market for business integration software.

Software AG's SOA software includes development tools that let businesses create an IT environment in which code can be deployed and reused. WebMethods focuses more on business process management software that lets companies integrate back-office functions.

Software AG needed the better BPM offering WebMethods provides, says Gartner analyst Jess Thompson. WebMethods' upcoming version of its Fabric integration suite is designed to give managers real-time views of data across departments, accounts, and supply chains. Combined, they have about $850 million in annual sales, but that would still be smaller than BEA Systems, another key BPM rival.

The deal has geographic appeal. Software AG sells mostly in Europe, and WebMethods would double its North American customer base.