Buyouts more lucrative in anaemic IPO

Cisco Systems Inc’s surprise and costly acquisition of business software firm AppDynamics Inc just two days ahead of its market debut suggests that US tech startups are finding more value in buyouts amid a still-tepid IPO market.

Cisco said taht it agreed to buy AppDynamics, which makes software to manage and analyze applications, for $3.7 billion. The offer price is more than double what the company would be valued at — $1.7 billion — if its shares were priced at the top end of its estimated IPO price range.

The deal will allow AppDynamics investors to exit their holdings completely, compared with a roughly 10 per cent exit if the company listed its shares.

“I think this does reflect that the valuations are still relatively conservative,” said Richard Truesdell, co-head of Davis Polk & Wardwell.