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Cisco Acquires AppDynamics for $3.7 Billion

Rowan Trollope

Rowan Trollope

Cisco Systems is acquiring AppDynamics for $3.7 billion in cash, the companies confirmed minutes ago. Cisco’s buyout of AppDynamics potentially reshapes the market for application performance monitoring (APM) — a hot-growth segment with expanding opportunities for MSPs and channel partners.

Rowan Trollope, senior VP and GM of Cisco’s Internet of Things and Applications Business Group, said: “The combination of Cisco and AppDynamics will allow us to provide end to end visibility and intelligence from the network through to the application; which, combined with security and scale, and help IT to drive a new level of business results.”

Related:

AppDynamics CEO David Wadhwani will continue to lead the APM team as a new software business unit in Cisco’s IoT and Applications business, reporting to Rowan Trollope, the companies said. The acquisition is expected to close in Cisco’s third quarter of fiscal year 2017, subject to customary closing conditions, the companies added.

Cisco Acquires AppDynamics: Rivals, APM Market Trends

AppDynamics competes against New Relic, Dynatrace, SolarWinds, CA Technologies and other APM providers. DevOps teams and MSPs increasingly leverage APM to monitor and optimize application performance — both on premises and in the cloud. New players — like Datadog — also are moving into the APM market and attracting MSPs.

AppDynamics was expected to IPO on Thursday, January 26. The company recently landed in Gartner’s Magic Quadrant for Application Performance Monitoring (APM). For the nine months ended Oct. 31, 2016, AppDynamics revenues were $158.4 million — up from $102.7 million for the corresponding nine months in 2015, the IPO filing said.

AppDynamics began to accelerate its channel partner program in 2015. Rival New Relic has also been building out a partner program. MSPs, in particular, are discovering APM as a way to improve end-customer experience. Historically speaking, many MSPs focused first on hardware and infrastructure optimization across PCs, servers and network infrastructure. But APM allows service providers to manage and optimize software stacks.

APM Market: Careful of the Hype

Although the APM market is growing, some skeptics warn partners and customers about the hype. Wall Street investors also have been somewhat cautious in recent months. AppDynamics’ IPO was originally priced far below the company’s privately funded valuation.

Still, ChannelE2E firmly believes the next management wave for MSPs requires effective APM platforms.

Complete M&A Coverage: Track all VAR, MSP and CSP mergers and acquisitions by visiting the ChannelE2E Milestones section daily.

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4 Comments

Comments

    Steve Stewart:

    Wow…that is a sky high valuation. 17x revenues. [if my math is correct] Yikes. And AppDynamics lost $95mil on $154mil of revenue.

      Joe Panettieri:

      Hey Steve: I didn’t do a calculation metric since I didn’t have final annual revenue figure for AppDynamics. However, I think it’s fair to say that the valuation is “sky high.” Also, it’s far higher than the IPO valuation AppDynamics was expecting this week… Rivals like New Relic are certainly celebrating AppDynamics’ valuation. At least for today.
      -jp

    Rick Murphy:

    “Yikes” is right; but congrats to the parties. This “purchase price” is not about a multiple of sales or any other kind of “multiple” at all (they lose money). The price was driven by many factors – which only Cisco execs know for sure – but likely the perceived value of the Intellectual Property (“IP”) owned and developed by AppD and how that will be exploited across the entire Cisco enterprise over time, was a key component. Throw in a premium for Cisco to prevent them from becoming a well-funded competitor while simultaneously spring-boarding them into a leading role in the APM space, and sprinkle in a premium for likely taking market share from their now much weaker competitors, and you have the makings of an excellent deal for all if everything pans out over the long haul. This deal relied on what I refer to as the “Opportunity Delta” that Cisco is forecasting – which put simply, is the difference between AppD’s current performance on their own and how they collectively project the future once combined over what is likely a very long investment period. And that must be some really hefty forecast! Important note: no way this is an analog to ANY form of M&A deal in the MSP IT services space. Just sayin. 😉

      Joe Panettieri:

      Rick: Thanks for adding some perspective. Hope all is well with Cogent Growth Partners. Please keep ChannelE2E posted as you continue to advise buy-side MSPs & IT service providers on potential deals.

      Best,
      -jp

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