Tim Mueller’s Transaction Analysis: New IT M&A Deals Jan 27

AppDynamics To Be Acquired by Cisco

Financial Information

  • Enterprise Value: $3.9 billion
  • EV/LTM Revenue: 18.9x

Transaction Facts

  • In a surprise announcement late yesterday, Cisco Systems (Nasdaq:CSCO) revealed that it was acquiring application monitoring company AppDynamics.
  • The deal supplants AppDynamics’ plans to trade on Nasdaq under the ticker APPD. Should the IPO had occurred, it would have been the first major tech IPO of 2017.
  • At a deal price of approximately $26 per share, Cisco is paying significantly more than AppDynamics’ original price range of $10-$12 per share (and its recently revised range of $12-14 per share). It is also higher than the company’s most recent private valuation, at $1.9 billion — good news for investors, who together have put in $314 million into the company.

Last-Minute Strategy Paid Dividends

  • Low Supply, High Demand: AppDynamics had several positive factors driving its planned IPO. The company’s “unicorn” status gave it distinction and prestige, and the relative drought among tech IPOs led many investors to seek it out. Its IPO was seen as the vanguard for a series of new US listings with uncertainty leading up to the US presidential election currently resolved. As a result, the road show was reportedly well-received.
  • Prime Leverage: The timing of this process could serve as a model for other unicorns. AppDynamics was well-positioned to negotiate an offer from Cisco — its imminent IPO provided an excellent fallback position should the deal fall through and provided the leverage to resist any onerous or disagreeable terms. At the same time, the acquisition promised protection from market conditions, relief from public disclosure regulations, and in this case a significantly higher valuation.
  • Left Hand, Right Hand: According to media reports, this surprise transaction was not a result of the company running a dual process. Instead, the company hired Qatalyst Partners to run a sale separate from the the official IPO process — and was rewarded with an offer that was approximately 20 percent higher than the expected post-IPO sales price.
  • A Familiar Model: Cisco is no stranger to making big deals, especially in perceived growth areas (see its Jasper Technologies acquisition for $1.4 billion last year, which bolstered its IoT capabilities). We’ve also seen several major pre-IPO acquisitions in recent months, from December’s acquisition of Optiv by KKR to Symantec’s acquisition of Blue Coat Systems for $4.65 billion in June.

For more information about this transaction, click here to read the press release.

IT Exchangenet was not the advisor in this transaction.

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