Cisco to Buy AppDynamics for $3.7 Billion -- 2nd Update
January 24 2017 - 10:13PM
Dow Jones News
By Rachael King and Dana Cimilluca
Cisco Systems Inc. is buying software company AppDynamics Inc.
for $3.7 billion, plucking the startup from IPO registration at a
big premium in an effort to bolster its software offerings to large
enterprise customers.
AppDynamics, whose software helps companies including Cisco
monitor the performance of their applications, was gearing up to be
the first tech company to go public this year. The company was
expected to price Wednesday night, and earlier Tuesday bankers
increased the IPO's estimated price that would have valued
AppDynamics at as high as about $2 billion.
Cisco agreed to pay about $26 a share, according to a person
familiar with the matter, well above the company's original price
range of $10 to $12 a share.
Under CEO Chuck Robbins, Cisco has placed increasing importance
on software. The company has long held a dominant share of sales of
the routing and switching equipment used to funnel data over the
internet and between computers in data centers. As competitors
enter the market with less expensive options, Cisco has focused on
other business lines such as security, collaboration and the
"Internet of Things."
Cisco's price nearly doubles the $1.9 billion valuation that
AppDynamics' investors placed on the company in late 2015. Those
backers include venture firms Greylock Partners and Lightspeed
Venture Partners, which each owned 20.8% of AppDynamics valued in
the deal at over a half-billion dollars.
AppDynamics had originally planned its debut for December but
postponed the offering due to uncertainty following the U.S.
presidential election. The company was set to lead an expected
charge of IPOs after one of the slowest years for new U.S. listings
in more than a decade.
The startup was founded in 2008 by veteran startup engineer
Jyoti Bansal, who saw that companies were becoming more reliant on
increasingly complex software. Customers such as airlines, banks
and retailers use the software to monitor the performance of their
applications to ensure they are running smoothly.
One of the benefits of AppDynamics's software is that it lets
companies monitor applications and fix problems across different
cloud services from companies like Alphabet Inc.'s Google and
International Business Machines Inc. This will become increasingly
important as companies shift their applications to run in data
centers from multiple providers.
"In a multi-cloud world, your ability to maintain quality of
service and visibility can become obfuscated," said Hilton
Romanski, chief strategy officer at Cisco, in an interview.
He said Cisco has been an AppDynamics customer for more than two
years. Cisco put a premium on the IPO price partially because of
the company's high revenue growth. In the first nine months of
2016, AppDynamics lost about $95 million on revenue of $158
million, up about 54% from a year earlier.
AppDynamics, which will continue to be led by CEO David
Wadhwani, will become a new unit in Cisco's Internet of Things and
Applications business. Cisco has long promoted the shift to the
"Internet of Things" -- a concept describing the myriad of
network-connected devices -- as the next major phase in the
evolution of the internet. Last year, Cisco bought Internet of
Things platform maker Jasper Technologies for $1.4 billion.
Beyond the Internet of Things, Mr. Romanski expects to spread
AppDynamics's technology across a number of businesses including
core networking, security and network analytics.
Write to Rachael King at rachael.king@wsj.com and Dana Cimilluca
at dana.cimilluca@wsj.com
(END) Dow Jones Newswires
January 24, 2017 21:58 ET (02:58 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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