Cisco bets on India-born Jyoti Bansal's start-up AppDynamics for growth

Networking major pays nearly double the expected valuation ahead of AppDynamics' IPO

Cisco Systems Inc has agreed to buy AppDynamics, a US technology firm founded by Indian-born Jyoti Bansal, for $3.7 billion.

AppDynamics was to go public on Wednesday and was expected to be valued at around $1.9 billion, before it was bagged by Cisco at almost double the valuation. 

This makes it one of its largest deals in recent years as Cisco searches for growth beyond its core networking business. This is Cisco's largest acquisition since it bought security company Sourcefire for $2.7 billion in 2013.

Legacy technology players like Cisco have been trying to shift their strategy to stay ahead of technology developments, such as the rise of cloud computing, that could otherwise threaten their core businesses. Cisco's announcement comes a week after Hewlett Packard Enterprise Co said it would buy cloud startup SimpliVity for $650 million in cash.

Bansal, an IIT-Delhi graduate, moved to Silicon Valley with a desire to be an entrepreneur. He built AppDynamics, a company that helps organisations monitor applications and find meaning in data, a decade ago. "In the nine years since, AppDynamics grew from that initial dream to a successful technology company that today is a strategic software vendor for the world’s largest enterprises," he wrote in a blog after the company scrapped plans to raise funds from the public markets to sell it to Cisco.

AppDynamics makes software that manages and analyses applications and it has about 2,000 paying customers, including NASDAQ Inc, Nike Inc and its new owner, Cisco.

Bansal, who was rejected by over 20 Silicon Valley venture capital firms before he raised his first $5 million, wrote code at nights and during the weekends for the firm he started when he was 21. He got his friend Bhaskar Sunkara to join him as a team member. Sunkara is the company’s chief technology officer. A year later, the company got its first paid customer in Yap, now part of Amazon. 

"As we established ourselves as a strategic platform for the enterprise, built the right cultural foundation in the company including a relentless focus on customer success, and instituted a world-class sales force, we continued to grow rapidly and meet many other milestones as part of that growth journey," Bansal wrote in his blog. "That included triple-digit sales growth for many years in a row, multiple rounds of financing (and a "unicorn" status, for what it's worth), and our global expansion."

Rob Salvagno, Cisco's vice-president of corporate development, said in an interview that the acquisition fits Cisco's long-term direction and its transition toward software. "The fact that they were in their IPO process represented a window where we needed to make a decision," Cisco's Salvagno said.

Cisco's offer comes out to roughly $26 per share, higher than the estimated $12 to $14 per share range it was planning. Ravi Mhatre, a board member at AppDynamics from LightSpeed Venture Partners, said: “Cisco made an offer that people felt was compelling.”

AppDynamics will become part of Cisco's Internet of Things and Applications Unit, reporting to Rowan Trollope. Cisco's last large acquisition, Jasper, is also part of that unit.

President Donald Trump's plan to incentivise US companies to repatriate their overseas cash could spur a new wave of dealmaking for large tech companies like Cisco, analysts say.