As the first planned public offering of 2017, AppDynamics was supposed to be a bellwether for other upcoming tech IPOs. If it went public and performed well, the “IPO window” would have been wide open, as bankers like to say.
That’s because the performance of a big tech IPO is often seen as indicative of investor appetite, and can set expectations for future offerings. Following the $3.7 billion sale of AppDynamics to Cisco, however, it’s not clear which company will be the first to go public in 2017 or how it will be received.
Investors and bankers we spoke to say there are reasons to believe that a positive outcome like this one is a good sign for exits in general. The trend of IPO candidates being acquired before hitting the public markets, as well as the strength of AppDynamics’ roadshow, bodes well for the large number of tech companies expected to file their S-1s this year.
In emails to TechCrunch, Union Square Ventures partner Fred Wilson wrote that the AppDynamics acquisition shows the “value of high growth tech companies to strategic buyers and the public markets alike… [as] those two markets feed off each other a bit.”
“One deal doesn’t normally change a market all by itself but I have felt like we are going to have a very strong IPO and M&A market in 2017 and this certainly is a positive sign,” Wilson wrote.
Without even testing the public markets, investor interest in the company’s IPO roadshow could be a positive indicator for other pipeline companies.
“The fact that AppDynamics went on the road and was so well received, that will only serve to increase the appetite from public tech investors for the best tech companies,” said Ravi Mhatre, partner at Lightspeed and early investor in AppDynamics. He predicts a number of exits this year, saying that “2017 could be the year of enterprise cloud technology companies coming of age.”
Greylock’s Asheem Chandna, also an early investor and board member at AppDynamics, echoed those comments. “If I look at the data from the roadshow, it was oversubscribed several times over. Based on the level of interest and coverage, I think it’s highly likely they would have had a very strong offering.”
The outcome also points to increased interest in tech M&A. Rick Kline, a partner at Goodwin Procter, which was supposed to be an underwriting counsel on the canceled IPO, believes we may see other situations where companies change course and are acquired while planning to go public.
“This won’t be the last one,” said Kline. Often known as a “dual-track” process, an IPO is a “good time to consider doing a market check and consider what options are out there.” He said media leaks frequently raise awareness of upcoming IPOs, which can result in M&A conversations.
He adds that the deal may inspire other prospective buyers to be more acquisitive. “For the larger technology incumbents, this probably does serve as a wake up call.” The larger tech companies may look at “best in class outfits that they can try to acquire.”