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Cisco’s Growth Push Convinces in to Agree to Buy AppDynamics for $3.7 Billion

Cisco’s Growth Push Convinces in to Agree to Buy AppDynamics for $3.7 Billion
In an effort to to find out ways and means to gain avenues of growth beyond its core networking business, Cisco Systems Inc has announced its largest deals of recent years  - as the company has agreed to buy out U.S. business software company AppDynamics Inc for about $3.7 billion.
In recent years there has been a proliferation of new technologies in the technology sector such as the development and the rise of cloud computing and therefore to prevent such new technologies from otherwise threaten their core businesses. legacy technology players like Cisco have been trying to shift their strategy to stay ahead of thises types of technology developments.
It was just a week ago that Hewlett Packard Enterprise Co said it would buy cloud startup SimpliVity for $650 million in cash and the announcement by Cisco follows that announcement.
Analysts say that a new wave of dealmaking for large tech companies like Cisco could be spurred by President Donald Trump's plan to incentivize U.S. companies to repatriate their overseas cash.
The acquisition fits Cisco's long-term direction and its transition toward software, Rob Salvagno, Cisco's vice president of corporate development, said in an interview.
With large and well known companies such as NASDAQ Inc, Nike Inc and its new owner, Cisco, AppDynamics has about 2,000 paying customers for the product it makes - software that manages and analyzes applications.
The day before the San Franciso-based firm was planning to price its long-planned IPO, Cisco swooped in to buy AppDynamics. The company has been conducting road shows with its investors for some time now.
"The fact that they were in their IPO process represented a window where we needed to make a decision," Cisco's Salvagno said.
In its last financing round in November 2015 the valuation that was accorded to AppDynamics was $1.9 billion and therefore the $3.7 billion offer from Cisco is nearly double of that valuation that AppDynamics received. Higher than the estimated $12 to $14 per share range it was planning - Cisco's offer comes out to roughly $26 per share.
“Cisco made an offer that people felt was compelling,” said Ravi Mhatre, a board member at AppDynamics from LightSpeed Venture Partners.
While the price for AppDynamics "appears to be high," the more software revenue that would result from the buyout would be a positive for Cisco according to RBC analyst Mitch Steves who mentioned this in a research note.
Reporting to Rowan Trollope, AppDynamics will become part of Cisco's Internet of Things and Applications Unit. Also part of the very same unit is Jasper, Cisco's last large acquisition.
In 2013, Cisco bought security company Sourcefire for $2.7 billion and this is the company’s largest acquisition since that biyout.
While Fenwick & West was Cisco's legal adviser, Goldman Sachs, Morgan Stanley and Qatalyst advised AppDynamics.
It is expected that the deal would be closed by April and it is a mix of cash and equity.

Christopher J. Mitchell

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