Cisco buyout of AppDynamics unusual, but not uncommon

It was much to do about nothing.

Thanks AppDynamics.

Capital market bankers, brokers marketing the deal to their clients and those high within the industry were all shocked and selfishly-disappointed that a hot-deal would not come to market. The deal was multiple-times oversubscribed, already had an increased range (bumped from $10-$12 to $12-$14) and was likely to price at the high-end or even possibly above that increased range (our sources indicate $14 was the number). The market was looking at a 2-4 point premium and a possible buzz in the aftermarket that could have possibly lit a fire under the technology sector in the IPO arena.

How was the book building in its final days leading up to the IPO? Below are the advisories that were sent to premium clients to keep them in the know on the deal.

But, in came Cisco at the eleventh hour with the $3.7bn offer to buy out the enterprise-grade application intelligence software platform with excellent top line growth but large losses. For the record, we think it’s a good move for Cisco as its extremely synergetic as the large-cap tech company is looking to get more into the higher-margin software market.

In our experience this type of late buyout happens from time-to-time and it’s more likely to occur in the technology sector. The last time this happened was December 2016 with Optiv Security. Another company that was bought out just prior to going public was Blue Coat Systems who was purchased by Symantec. Whether the high-demand on the street for this deal became a factor in Cisco’s interest or possibly pushing Cisco to make a higher bid is unknown.

But what does this mean going forward?

It could mean high-growth, high-margin software names are in demand from the M&A perspective. The strong tailwinds of just the possibility of acquisition…can certainly drive names to increased valuations which could be reflected in the IPO market.

It also means that we may not see the aftermarket perception of new tech IPOs after absorbing an IPO premium. What we mean by this is…it’s one thing to have large, pre-IPO investors drive up the deal, but it would lift the confidence of the sector even more to see one perform strongly after going public.

Given the big year expected on the horizon for technology, this would have been a nice feather in the cap to start 2017.

Unfortunately, while this type of activity is uncommon — bigger pockets took a big tech IPO off the market.

Inevitably, the next question IPO investors want to know now is…who’s next?

We have heard from reliable sources that some technology companies may be playing it close to the vest at the present time, not even to signal a deal is imminent with a SEC filing.

If you are an investor who has the capital to indicate for Pre-IPO stock, make sure you indicate for ones in demand; ones that have strong guidance, ones that will put you in a good position to sell in the aftermarket.

Beyond the comprehensive research, IPO Boutique provides daily advisories on how the deal is building, when the books will close and what is the latest price guidance to make sure you….INDICATE WITH CONFIDENCE.