As the AppDynamics IPO roadshow hit its home stretch this week, top leaders of the software company were back home in California for final visits with prospective shareholders.
Facing a standing-room audience at the Loews Regency Hotel in downtown San Francisco on Monday, AppDynamics CEO David Wadhwani and CFO Randy Gottfried pitched their story to about 100 investors. Then they hopped on a flight to Los Angeles for morning investor meetings the following day, according to sources familiar with the matter.
Meanwhile, about 40 employees, including founder Jyoti Bansal and some board members, were getting ready to head to New York for the software developer's debut on the Nasdaq Stock Market, slated for Thursday, said the sources, who asked not to be named because details surrounding the IPO were confidential.
Investors were expressing enthusiasm. AppDynamics raised the price range for the IPO on Tuesday and the deal was oversubscribed, the sources said.
Little did the almost 1,200 employees know that the company's board was frantically negotiating a sale to Cisco, an AppDynamics customer and technology partner.
In an effort to beat the clock, Cisco CEO Chuck Robbins had quietly invited Wadwhani to his house to propose an acquisition, according to a blog post from Asheem Chandna, an AppDynamics board member and partner at venture firm Greylock Partners. Cisco lobbed in an acquisition bid, and the two companies came to a handshake agreement on Saturday, according to sources.
It wasn't definitive enough to keep AppDynamics from going forward with the IPO, so the companies agreed to a 72-hour negotiating period, giving Cisco just enough time to finalize an offer before the share sale.
After multiple bids, Cisco said in a press release on Tuesday afternoon that it had agreed to buy AppDynamics for $3.7 billion, marking its biggest acquisition since 2012, when the networking company spent $5 billion on video software maker NDS.
"Cisco has been a customer of AppDynamics for a number of years," said Rob Salvagno, head of corporate development at Cisco, in a conference call on Wednesday. As a client and partner, "that just helped bring us closer and ultimately give us the confidence to move towards making this deal happen," he said.
When Wadhwani and Gottfried returned to the AppDynamics office in San Francisco late Tuesday, they were greeted by Cisco's Robbins and Rowan Trollope, a senior vice president, to jointly address the staff, one source said.
For Cisco, AppDynamics represents the next big step in the company's transition from hardware — switches and routers — to the software that's now driving almost all advancements in technology.
AppDynamics' code is used by banks, retailers and airlines that have scores of apps and websites and need to be able to track bugs, slow load times and faulty transactions. The software provides visibility into everything that's happening across corporate networks, enabling quick fixes.
Until shortly before the announcement, Morgan Stanley and Goldman Sachs were plugging along as the lead underwriters preparing for the offering. And Silicon Valley venture capitalists and entrepreneurs were closely tracking the deal, which would've been the first venture-backed tech IPO in three months, following the slowest year for new tech offerings since 2009.
To handle negotiations with Cisco, AppDynamics hired Qatalyst Group, the investment advisory run by Frank Quattrone, sources said. TechCrunch previously reported Qatalyst's involvement.
Cisco was running its side of the process from San Francisco and Silicon Valley, under the leadership of Salvagno and Chief Strategy Officer Hilton Romanski, a source said. Cisco tends to avoid outside bankers for mergers and acquisitions, instead utilizing its internal corporate development group.
A Cisco spokesperson declined to comment beyond referring to the transcript of the call.
Sources familiar with AppDynamics insiders said the sale was described as "bittersweet" because of the company's expanding customer base, rapid revenue growth and general belief that it could thrive on its own. Also, it meant there'd be no ringing of the Nasdaq bell.
On the conference call, Wadhwani said the IPO process was "going very well and the interest was very, very high."
But the last-minute deal was a windfall for AppDynamics' backers and early employees. At a purchase price of $3.7 billion in cash, shareholders are exiting at about twice the valuation that the IPO would've likely established, and they don't have to wait for the six-month lockup period to expire to start selling stock.