Twelve hours ago, I was prepared to write a straightforward, borderline boring analysis of the AppDynamics IPO, slated for this morning. Then …a catalyst changed things. Specifically, Qatalyst Group.
While AppDynamics was putting the finishing touches on its road show pitch decks, Nadir Shaikh, an M&A banker at Qatalyst Group, was discussing an acquisition with potential buyers. To be clear: This was not a dual-track process. (TechCrunch first noted this last night.) AppDynamics had not yet retained Qatalyst, according to a person familiar with the deal. But Qatalyst doesn’t underwrite IPOs, so drumming up interest from a buyer — in this case, Cisco — is one way to turn someone else’s IPO deal into a Qatalyst M&A deal. In other words, the firm lived up to its name.
Last night Cisco announced it acquired AppDynamics for $3.7 billion. Somewhere, a box of Lucite deal trophies is going straight to the garbage.
Shaikh also worked on Cisco’s acquisitions of Sourcefire, OpenDNS, and Jasper. AppDynamics’ underwriters Morgan Stanley and Goldman Sachs advised the company alongside Qatalyst in the deal.
A few notes:
Timing: The deal came together in about 72 hours. Cisco decided late last week to aggressively go after the company. The AppDynamics team didn’t think there was enough time, but after “maddening negotiations,” according to one person familiar with the deal, it came together.
Documents were signed yesterday afternoon. That means CEO David Wadhwani was pitching the stock to road show investors as late as yesterday morning, just hours before selling the company. Whoops, nevermind!
Demand: The IPO was “crazily oversubscribed,” one person familiar with the deal said, because of pent-up institutional demand for IPOs. That bodes well for whichever company takes the plunge next.
Pricing: The 11th hour timing gave AppDynamics a lot of negotiating power. If Cisco had approached the company a few months earlier, it likely could have gotten it at a much lower price. But because AppDynamics had nothing to lose if the deal didn’t happen, it could negotiate a cash deal with no escrows or terms. “They had to buy it like it was a public company,” one source says.
Rob Salvagno, Cisco’s head of M&A, told my colleague Jonathan Vanian, “Timing is always something that you can debate.”
Whiplash: The vote to sell was unanimous, but some board members took a little convincing. I’m guessing Wadhwani had some whiplash — he joined the company a year and a half ago, with founder Jyoti Bansal becoming chairman. The plan was for Wadhwani to build out the management team, streamline operations, and take it public.
Returns: This is a very good outcome for AppDynamics’ investors, who poured $314 million into the company over nine years. The company’s last valuation was $1.9 billion.
Greylock and Lightspeed co-led the Series A and Series B rounds. They each made more than 100x their money, according to people familiar with the deal. Greylock says the deal more than returned its entire twelfth fund, a $500 million vehicle that closed in 2005.
Kleiner Perkins Caufield & Byers, which led the Series C, made more than 10x. Later investors include IVP, Battery Ventures, Sands Capital Ventures, ClearBridge Investments, Altimeter Capital, Adage Capital and General Atlantic. The latter three were planning to invest in a private placement alongside the IPO.
What does AppDynamics do, you ask? According to its now-irrelevant S-1, the company operates an “innovative, enterprise-grade application intelligence software platform that is uniquely positioned to enable enterprises to accelerate their digital transformations by actively monitoring, analyzing and optimizing complex application environments at scale.” According to its extremely relevant press release, the company “helps many of the world’s largest enterprises translate this data into business insights and empowers them to drive value for their customers in today’s digital world.” For more on the deal, read Vanian’s analysis here.
In other IPO news: The Jose Cuervo IPO is back on track after a Donald Trump-related delay, Bloomberg reports. The company is reportedly preparing to raise $1 billion. No word on the ticker symbol, but I submit SHOT or LIME…
Activism gets results: Bob Evans’s activist investor has successfully pushed the company to transform itself. Golden Gate Capital is acquiring the company’s restaurants for $565 million, while the company’s packaged foods business, a smaller but faster-growing segment, will stay listed. (That business also announced it bought a potato company.) It wasn’t exactly the outcome activist Thomas Sandell had been pushing for – he wanted Bob Evans to sell off the packaged food business, not the other way around. My colleague John Kell notes:
Restaurant companies can make ripe targets for activists, as most are tiny by market-cap standards so amassing a sizable stake doesn’t cost too much. Buffalo Wild Wings (BWLD, +1.81%) and Chipotle Mexican Grill (CMG, +2.49%) have both seen activist investors jump into their stocks in recent months. Read more here.
Deal advisor to dealmaker: Cowboy Ventures, founded in 2012 by Aileen Lee, has hired Fenwick & West partner Ted Wang as its second partner. Wang is well-known in the Bay Area for providing legal counsel to many top startups, including Facebook, Twitter, Dropbox and Square. He’s also known for leading the effort to standardize fundraising documents, having created Series Seed Documents.
It’s not terribly common for lawyers to make the jump to the deal-making side in venture capital. Lee tells Term Sheet: “What’s most important, especially with a really small firm, is not to hire someone who is just like me – ‘culture fit’ – but to hire someone who was different from me but had common values.”
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HEALTH + LIFE SCIENCES DEALS
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PRIVATE EQUITY DEALS
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FIRMS + FUNDS
• Blackstone Group’s (NYSE:BX) secondaries unit, Strategic Partners Fund Solutions, raised $7.5 billion for its seventh fund, Strategic Partners Fund VII LP.
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• T.J. Whalen has joined FreshTracks Capital as a general partner and managing director. Whalen was the chief strategy office at Green Mountain Coffee Roasters.
• Andy Tse has joined Baird Capital as a partner to help lead the firm’s investment efforts in Asia. Tse was previously a managing director at AIF Capital.
• Ryan Roberts has joined Pritzker Group Private Capital as an investment partner and co-head of the group’s growing services team. Previously Roberts was a director on the technology, media and telecom services team at Madison Dearborn Partners.
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• Bradford Berenson, vice president and senior counsel for litigation and legal Policy for General Electric, will join TPG as General Counsel.