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AppDynamics' IPO Didn’t Go Quite as Planned…

Written by Monica Savaglia
Posted February 8, 2017

AppDynamics was set to be the first huge tech IPO of this year.

Its market debut was already planned... it was scheduled to begin selling shares on the NASDAQ on January 26th. Its IPO price was going to be between $12 and $14, valuing the company at $1.7 billion.

However, that’s not what went down...

On the night before AppDynamics' IPO date, tech company Cisco (NASDAQ: CSCO) announced that it would be buying AppDynamics for $3.7 billion — $2 billion more than what the company was hoping for with its IPO.

Well, the story is a little more exciting than that...

2017's First Tech Unicorn IPO Turned Acquisition

On Monday prior to the IPO date, CEO David Wadhwani and CFO Randy Gottfried spoke to 100 investors in downtown San Francisco. They were doing what any company that was making its market debut would do... they were sharing their story and business strategy in hopes of snagging up some prospective shareholders.

Then came Wednesday, just one day before the big reveal. Forty employees were headed to the Nasdaq Stock Market for the opening bell... but little did they know that Cisco put in a bid to buy AppDynamics, and they had to turn around to get back on a plane and go home.

In the meantime, while those 40 employees were traveling to New York, there were acquisition negotiations going on between Cisco's CEO Chuck Robbins and Wadhwani that eventually led to the purchase price of $3.7 billion for this already well-valued tech company.

Who is AppDynamics?

AppDynamics is an application performance monitoring and IT operations analytics company. Its Application Performance Management (APM) platform gives users real-time insight into its application's performance.

The company has seen significant growth in the past two years. In 2014, its revenue was at $23.6 million, and by 2016 revenue rose to $150.6 million. A huge chunk of that revenue, 82% to be exact, was generated from subscriptions.

How Will AppDynamics Fit into Cisco?

With the growing competition in the realm of data centers, Cisco has been developing its business towards cloud, software, Internet of Things (IoT), and security.

AppDynamics is Cisco’s largest acquisition since buying the security company Sourcefire in 2013.

Having AppDynamics as part of Cisco will enhance and broaden its software portfolio, not to mention bring in some consistent revenue for Cisco all thanks to AppDynamics subscribers.

The acquisition will be completed on April 2017 and integrated into Cisco’s IoT and Applications unit. Not much will change in regards to the chain of command — AppDynamics CEO David Wadhwani will continue to serve as CEO for Cisco’s unit.

Cisco is making moves that’ll allow it to continue to thrive with its competition while staying relevant. The incorporation of AppDynamics will assist Cisco with shifting from a hardware company to a company with a software focus.

AppDynamics CEO and president said:

AppDynamics is empowering companies to build and successfully run the applications they need to compete in today's digital world...

With digital transformation, companies must re-define their relationships with customers through software. We're excited to join Cisco, as it will enable us to help more companies around the globe.

And what better way to stay relevant in the world of tech than focusing on building up its Internet of Things unit? After all, IoT is being called the next Industrial Revolution.

Right now, IoT is having a huge effect on the world as we know it, and it's only getting bigger, impacting the way businesses, governments, and people interact with the real world.

If you’re not familiar with the term Internet of Things (IoT), it refers to a network of other networks that have identifiable endpoints, or “things,” that communicate with each other using IP connectivity and no human interaction at all.

Not to mention, IoT and database analytics applications are expected to be the fastest growing in the enterprise sector, with an expected CAGR of 22% between 2015 and 2020.

There will be a little over $2.5 trillion spent between 2015 and 2020 on application development for IoT. And as more applications get developed and used, there will be a higher demand for a software platform like AppDynamics to help clients manage and analyze their app's performance.

Cisco’s Head of M&A and the Venture Investment team, Rob Salvagno, said:

As companies across industries are expanding their digital infrastructure, IT departments are faced with vast amounts of complex, siloed data. AppDynamics helps many of the world’s largest enterprises translate this data into business insights and empowers them to drive value for their customers in today’s digital world.

This is a huge acquisition for Cisco, especially since it's still a fairly new sector but has huge growth potential. I know I'll be keeping my eye out on Cisco... I see some promising business developments ahead.

Until next time, 

Monica Savaglia
Wealth Daily

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