Cisco to Buy AppDynamics for $3.7 Billion in Growth Push

Cisco Systems Inc said on Tuesday that it agreed to buy US business software company AppDynamics Inc for about $3.7 billion (roughly Rs. 25,213 crores), one of its largest deals in recent years as the company seeks growth in areas outside of its core networking business.

Legacy technology players like Cisco have been trying to shift their businesses to stay ahead of technology developments, such as the rise of cloud computing, that could otherwise threaten their core businesses.

Cisco's announcement comes a week after Hewlett Packard Enterprise Co said it would buy privately held cloud software company SimpliVity for $650 million in cash, as it looks to expand its position in hybrid cloud platforms.

Rob Salvagno, Cisco's vice president of corporate development, said in an interview that the acquisition fits Cisco's long-term direction and its transition toward software.

AppDynamics, based in San Francisco, will be become part of Cisco's Internet of Things and Applications Unit, reporting to Rowan Trollope. Cisco's last large deal, a $1.4 billion acquisition of Jasper last year, is also part of that unit.

AppDynamics makes software that manages and analyzes applications and it has about 2,000 paying customers, including Citrix Systems Inc, eHarmony, Kraft Inc, NASDAQ Inc and Nike Inc.

The deal, which is a mix of cash and equity awards, is the largest acquisition for Cisco since it bought security company Sourcefire for $2.7 billion in 2013. The deal is expected to close in Cisco's fiscal third quarter.

Nick of time
Cisco swooped in to buy AppDynamics the day before it was planning to price its long-planned IPO. The company had filed for an IPO of up to $100 million in December last year and had been on a road show with investors.

"The fact that they were in their IPO process represented a window where we needed to make a decision," Cisco's Salvagno said.

The $3.7 billion offer from Cisco is nearly double the $1.9 billion valuation AppDynamics received in its last financing round in November 2015 and much higher than the IPO valuation it would receive at the estimated $12 to $14 per share range it was planning.

"Cisco made an offer that people felt was compelling," said Ravi Mhatre, a board member at AppDynamics and led the company's major investment round in 2008 at LightSpeed Venture Partners.

Cisco said it expects the deal to close between February and April, its fiscal third quarter.

Fenwick & West was Cisco's legal adviser.

© Thomson Reuters 2017