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Dual Track Planning - Lessons from AppDynamics

Axel Kirstetter, VP Product Marketing, Merrill Corporation | March 28, 2017

Motivations for an IPO can vary greatly – investors seeking an exit, leadership looking to boost their CVs, increased transparency for the next organic growth cycle, a financial injection. No matter what’s driving it, one critical element to get it right in this cycle is timing. And for those seeking to go public, 2016 has been one of the worst markets for IPOs with multiple factors in play.

This is an issue especially when earlier-stage investors are seeking a return or when a company needs to find new sources of funding. In comes another form of strategic event: the buy-out. Pursuing both options in parallel – IPO and M&A - is referred to as “dual-track”. It has the advantage of allowing a company to keep its options open as to which path it chooses to pursue until the last minute – helping to hone in on the critical timing factor. The IPO will provide real-time feedback on the company’s valuation and market attractiveness all the while allowing other companies to see if they want to diversify into new markets or consolidate existing market share via an acquisition.

What the IPO and sale tracks have in common is the use of a Virtual Data Room. This creates a secure collaboration environment that allows for due diligence to be conducted efficiently and with ultimate data control. Companies that are serious about the dual-track need to ensure their VDR vendor is a premium provider and can provide IPO execution capability in-house. Neither of these elements is a given – and the real intention is given away impacting valuation.

One recent example of how successful the dual-track can be is AppDynamics, which was able to double its valuation when Cisco acquired it 24 hours before it was due to go public. With tech companies in particular sitting on large cash reserves this form of exit is likely to repeat itself

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