Cisco systems Inc. is set to buy US business software company Appdynamics for $3.7 billion. This is the largest deals in the recent years. For Cisco it is largest since 2013 when it bought Sunfire for $2.7 billion in 2013.
Company is trying to shift their strategy just to stay ahead of all the technology advancements. These technological developments include internet of things (IOT) and cloud computing. In addition, they need to stay ahead so as it doesn’t threaten their core business. Combining real-time visibility and intelligence at network, security and application layers is transformational for companies. As per analysts, Donald trump, the newly elected president may plan to encourage US companies to repatriate their overseas cash. This is going to spur a wave for the businesses like Cisco.
Appdynamics makes software that manages and analyses applications. Additionally, it has 2000 paying customers including NASDAQ Inc., Nike Inc. it will become part of cisco internet of things and applications unit. Jasper, the last largest acquisition by Cisco is also a part of that unit. The acquisition of Appdynamics supports the strategic transition of Company to develop software centric solutions.
$3.7 billion offer by Cisco is double the valuation of Appdynamics. As per last financing round in November 2015, Appdynamics valuation was $1.9 billion. The offer comes around $26 per share as against the planning range of $12 to $14 per share. Though the price is high initially, but software revenue is going to be high.
The deal is a mix of cash an equity. It is expected to be closed by April. Another San-Francisco based company was set to launch its IPO the next day. Cisco takes the advantage of this window and swoops in to buy.
RBC analyst Mitch Steves says that while the price appears to be high but software revenue is positive for Cisco. Also, Hewlett Packard also said last week that it would buy cloud startup Simplivity for $650 million in cash.
