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Cisco Systems Ready to Pay $3.7 Billion to Buy AppDynamics

Cisco Systems Inc has announced that it is in the process of finalizing the $3.7 billion deal to buy San Francisco-based business software company AppDynamics Inc.

The deal, if completed, would be one of its largest deals in recent years, and would help Cisco grow in areas outside of its core networking business. In 2013, Cisco had bought security company Sourcefire for $2.7 billion. AppDynamics acquisition deal will involve cash and equity awards, and is expected to be completed between February and April, the third quarter of Cisco’s fiscal.

Today, technology is developing with fast pace now, forcing many legacy technology players to think of shifting their businesses in order to stay ahead of their competitors.  Digitization and cloud computing are two main factors forcing the worlds of IT and business to blend together.  Just last week, Hewlett Packard Enterprise Co had revealed its plan to buy SimpliVity—a privately held cloud software company—for $650 million in cash.

According to Rob Salvagno, Cisco’s VP of corporate development, the acquisition of AppDynamics would help Cisco over the long term and in its shift toward software.

AppDynamics specializes in making software to analyze and manage applications. With digital infrastructures of companies expanding rapidly, the IT departments are faced with huge amounts of complex, siloed data. AppDynamics helps such firms translate this data into business insights in today’s digital world. Currently, the company has about 2,000 paying customers, including NASDAQ Inc, Nike Inc, eHarmony, Citrix Systems Inc, and Kraft Inc. After acquisition, AppDynamics will become a part of the Internet of Things and Applications Unit of Cisco. Jasper that was acquired by Cisco for $1.4 billion last year is also part of that unit. AppDynamics will continue to be led by CEO David Wadhwani.

The $3.7 billion offer from Cisco is much higher than the $1.9 billion valuation that AppDynamics received in its last financing round in November 2015.

“Cisco made an offer that people felt was compelling,” said Ravi Mhatre, a board member at AppDynamics.

Cisco’s legal adviser for this deal was Fenwick & West.