On Tuesday, Cisco Systems Inc. agreed to purchase U.S business software company AppDynamics Inc. for approximately $3.7 billion, the largest deals of the company in the recent years as it aimed for the development beyond its core networking business.
This acquisition happens to be the largest buying activity of Cisco since it bought security company Sourcefire for $2.7 billion in 2013.
Legacy technology companies like Cisco have been trying to change their approach to stay in advance of technology developments, just like the rise of cloud computing, that could otherwise threaten their core businesses.
The AppDynamics whose software helps monitor and analyzes performance of their applications including NASDAQ Inc, Nike Inc and its new owner, Cisco, was gearing up to be the first tech company to go public this year. It has around 2,000 paying customers.
Later today, the company is expected to set price after the bankers increased the IPO’s estimated price that would have valued AppDynamics at as much as approximately $2 billion on earlier Tuesday.
According to the sources, Cisco agreed to pay about $26 a share, this is above the company’s original price range of $10 to $12 a share.
Cisco has been a customer of AppDynamics for more than two years now. Cisco puts a premium on the IPO price partly because of the company’s high revenue growth. During the first nine months of 2016, AppDynamics lost approximately $95 million on revenue of $158 million, up approximately 54% from a year before.
AppDynamics, will become a new unit in Cisco’s Internet of Things and Applications business and will continue to be managed by CEO David Wadhwani.
In Addition, the $3.7 billion offer from Cisco is almost twice the $1.9 billion estimate AppDynamics received in its last financing round in November 2015.
“Cisco made an offer that people felt was compelling,” said Ravi Mhatre, a board member at AppDynamics from LightSpeed Venture Partners.
Goldman Sachs, Morgan Stanley and Qatalyst advised AppDynamics while Fenwick & West were Cisco’s legal adviser.
The contract, which is a combination of cash and equity, is expected to end by April.
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