News broke about Cisco Systems Inc. intention to acquire AppDynamics Inc. on January 24th 2017 in a blog post by Rob Salvagno, the Vice President of Corporate Business Development, Cisco one day before the Software developer was scheduled to sell its shared to the public which would have been the first big tech IPO of 2017 according to Business Insider.
It is also Cisco’s largest acquisition since it bought security company Sourcefire for $2.7 billion in 2013. Cisco is to buy AppDynamics for roughly $3.2 Billion.
AppDynamics is a San Francisco-based software company founded in 2008. It helps its customers monitor the performance of their business applications, helping them get a deeper look into the inner workings of their applications.
The idea is to catch issues before they become major issues and nip them in the bud.
David Wadhwani, AppDynamics CEO and president said in a press release:
“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.”
A Shift for Cisco:
Chuck Robbins has been trying to push Cisco into the new era of computing as the big switches and routers which turned Cisco into a dominant force in computer networking aren’t in high demand anymore.
Businesses are turning to buying commodity boxes which can be controlled by customizable software.Cisco needs to adapt to stay in the game it needs to own more of the software that corporations are buying.
Cisco has been acquiring software and services companies–with the last addition being Jasper Technologies— working to increase revenue growth, which has plateaued as the computing industry experiences a shift from expensive fixed hardware and software.
Since becoming the Chief Executive Officer in 2015, Robbins has sought to transform Cisco by offering customers flexible products that will eventually generate recurring revenue.
Rowan Trollope, Cisco Senior Vice President and General Manager of Cisco’s Internet of Things and Applications Business Group stated:
“Applications have become the lifeblood of a company’s success. Keeping those apps running and performing well has never been more important. Unfortunately, that job has only gotten harder, as IT departments and developers struggle with a tangled web of disconnected, complex data that’s hard to understand,”
High Price, But Better Revenue:
The $3.7 billion offer from Cisco is almost double of the $1.9 billion valuation AppDynamics received in its financing round–Series F– in November 2015.
Cisco’s offer comes out to roughly $26 per share, which is higher than the estimated $12 to $14 per share range it was planning for in its IPO.
According to RBC analyst Mitch Steves the price for AppDynamics “appears to be high” but he views more software revenue as a positive for Cisco.
AppDynamics will become part of Cisco’s Internet of Things and Applications Unit, reporting to Rowan Trollope.
The Internet of things refers to devices like elevators and wind turbines that can be connected to the web. Cisco’s last large acquisition, Jasper, is also part of that unit.
AppDynamics CEO David Wadhwani will remain the leader of the now Cisco-owned software-monitoring unit and will report to Cisco executive Rowan Trollope.
Rob Salvagno said it’s too early for Cisco to determine how AppDynamics’ technology will be marketed and whether it would keep the company’s branding.
As of right now, Cisco wants to focus on assimilating the company and explore the business of helping software developers manage their applications.
“We are buying AppDynamics because we fundamentally believe that they are redefining the application development space, We want to turbo charge that.”