Is Cisco Paying Too Much for AppDynamics?



Cisco offered the highest acquisition multiple for AppDynamics

So far, we’ve attempted to analyze various aspects to understand how Cisco (CSCO) would benefit from its latest billion dollar acquisition of AppDynamics. Based on AppDynamics’ S-1 filings, Cisco’s offer of $3.7 billion implies a 17.3x enterprise value to TTM (trailing-12-month) revenue multiple. This is 41% higher than the nearest acquisition of Salesforce/Demandware, as reported by Tomtunguz.com. Earlier in the series, we discussed AppDynamics’ rapid revenue growth, which has likely added to its popularity as an acquisition target.

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Thus, as the below chart shows, AppDynamics was valued at the highest multiple in software history by Cisco. It was followed by Salesforce’s (CRM) acquisition of Demandware. SAP (SAP), IBM (IBM), Oracle (ORCL), and Microsoft (MSFT) are other software players who have acquired companies by paying high multiples.

AppDynamics’ buyout

Citing Max Wolff, market strategist at 55 Capital Partners, Zacks Research, said, “Cisco and HPE show that large legacy tech companies are willing to swoop in to acquire startups, but the wide range of potential outcomes could lead to startups trying to stay private another year.”

Cisco’s AppDynamics acquisition is perceived as the onset of M&A activity in the software and overall technology space. According to fly.com, Brad Reback, an analyst with Stifel, Cisco’s acquisition of AppDynamics “bodes well for the small- and mid-cap names across his firm’s coverage list, including potential consolidation candidates such as Barracuda (CUDA), ChannelAdvisor (ECOM), FireEye (FEYE), HubSpot (HUBS), Paycom (PAYC), Paylocity (PCTY), Proofpoint (PFPT), SecureWorks (SCWX), Splunk (SPLK), Tableau (DATA), Ultimate Software (ULTI), Veeva (VEEV) and Zendesk (ZEN).”


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