Cisco buys AppDynamics for 3.7 billion dollars. Investors those have stocks in startups can be termed lucky, if they have to pick from various options like, receiving stock in any public company, getting cash, or having stocks through publicly traded owner.
AppDynamics, the software developer based on San Francisco that incorporates and enhances the performance of business systems, almost got the first option cited above, but, ultimately Cisco systems appeared and provided them another opportunity. This can be termed as an enchanting deal for the shareholders of AppDynamics, or a way to avoid Cisco stock.
Prior going through the underneath reasons, given below are the aspects that the start-up shareholders should bank on when they have the privilege to choose the exit option.
IPO shares offer perfectly aimed advantage and risk.
If an investor trusts that the company will keep up its growth process, the IPO shares can be best options. However, the CEO of the company is inexperienced to run a public company. Hence, the IPO could make the investors bear hectic losses after the first IP burst.
Cash of the acquirer
This option absolutely fixes things on investment benefits. However, there are also chances of taxation issues considering the factor that the investor has to pay tax post receiving the cash.
Stock of the acquirer
This as an option allows the investors adjourn tax payment on any benefit, as long as he/she trades the shares in the acquirer. It may also be found sensible to stick with the owner’s stock, in case the investor trusts that CEO can keep up the growth rate better than expected.
The possibilities as explained might have appeared within the minds of the AppDynamics shareholders. It is speculated that excitement to sell Cisco was at the peak as it made the value more than double of that their holdings would have dragged in the IPO dated for 25th January. Cisco is offering $3.7 billion in cash. On the other hand, the maximum side of the IPO limit would have made the company worth $1.72 billion, which is much lower that of $1.9 billion of AppDynamics, as per its last transaction in November, 2015. Hence, it can be concluded that the investors are not sure about Cisco’s stock, as they found a lot of risk than the possibilities. On the other hand, Cisco officials were quite stubborn on this matter claiming it is crucial for Cisco to have noteworthy software that can deliver the best.
A look on revenues:
Ultimately, AppDynamics made huge 158 million dollars revenue. Through the process, it lost a quite 95 million dollars by October last year. In addition, AppDynamics is quite insufficient as well to put any kind of effect on Cisco’s revenue. In fact, the revenue has reached at 49 billion dollars that have been gradually sliding for some times. This is the reason that the experts speculate that such acquisitions hardly going to change the scenario in any manner.
Well, Cisco looks quite confident about the investment it made. Anyway, David Wadhwani, the CEO of AppDynamics is expected to remain on his position for a new unit in Cisco’s Internet of Things and Application trading.