Cisco to acquire AppDynamics for $3.7bn

BY Richard Summerfield

Cisco Systems Inc. has announced that it is to acquire software startup AppDynamics in a deal worth $3.7bn.

The deal, which is expected to close before April, came on the eve of AppDynamics’ planned public offering. The IPO, due to be launched on Wednesday, would have been the first major tech offering of 2017. AppDynamics had intended to launch its IPO in December 2016; however the company decided to delay its offering due to uncertainty over the US presidential election.

The $3.7bn price dwarfs the $1.72bn market value that AppDynamics was seeking via IPO. Cisco agreed to pay around $26 a share, well above the company’s original price range of $10 to $12 a share.

Cisco, which has been synonymous with computer networks and hardware, has become increasingly focused on software under the leadership of CEO Chuck Robbins. The company is pivoting toward new business lines, including the Internet of Things, and has begun to make acquisitions in the space. In 2016 Cisco acquired Internet of Things platform maker Jasper Technologies for $1.4bn.

“Applications have become the lifeblood of a company's success. Keeping those apps running and performing well has never been more important. Unfortunately, that job has only gotten harder, as IT departments and developers struggle with a tangled web of disconnected, complex data that's hard to understand," said Rowan Trollope, Cisco senior vice president and general manager of Cisco's Internet of Things and Applications Business Group. "The combination of Cisco and AppDynamics will allow us to provide end to end visibility and intelligence from the network through to the application; which, combined with security and scale, and help IT to drive a new level of business results."

AppDynamics, founded in 2008, will continue to be led by the company’s chief executive and president David Wadhwani. "AppDynamics is empowering companies to build and successfully run the applications they need to compete in today's digital world," said Mr Wadhwani. "With digital transformation, companies must re-define their relationships with customers through software. We're excited to join Cisco, as it will enable us to help more companies around the globe."

News: Cisco Pays $3.7 Billion for Software Maker AppDynamics

Significant rise in fraud and risk incidents in 2016, confirms new report

BY Fraser Tennant

Fraud, cyber and security incidents are now the “new normal” for companies across the world, according to a new report by Kroll, the global risk consulting company.

In its ‘2016/17 Annual Global Fraud and Risk Report: Building Risk in a Volatile World’, Kroll highlights the escalating threat to corporate reputation and regulatory compliance. Eighty-two percent of the global executives surveyed stated that their company had fallen victim to fraud in 2016 , up from 75 percent in 2015.

Kroll also found that cyber incidents were particularly commonplace, with 85 percent of executives confirming that their company had suffered a cyber incident over the past 12 months. Furthermore, over two-thirds (68 percent) reported the occurrence of at least one security incident over the course of the year, with the theft or loss of intellectual property cited as the most common type.

Although the Kroll report highlights the widespread concerns over external attacks, the data indicates that the most common perpetrators of fraud, cyber and security incidents over the last year were current and former employees. Junior staff were cited as key perpetrators in two-fifths (39 percent) of fraud cases, followed by senior or middle management (30 percent) and freelance or temporary employees (27 percent). Former employees were also identified as being responsible for 27 percent s of reported incidents.

“It’s becoming an increasingly risky world, with the largest ever proportion of companies reporting fraud and similarly high levels of cyber and security breaches,” said Tommy Helsby, co-chairman at Kroll Investigations and Disputes. “The impact of such incidents is significant, with punitive effects on company revenues, business continuity, corporate reputation, customer satisfaction and employee morale.”

In terms of the impact that fraud and security concerns have on overseas expansion, 69 percent of executives admitted that their company has been dissuaded from operating in a particular country or region due to fraud concerns and security threats.

Mr Helsby concluded: “With fraud, cyber and security incidents becoming the new normal for companies all over the world, it’s clear that organisations need to have systemic processes in place to prevent, detect, and respond to these risks if they are to avoid reputational and financial damage.”

Report: ‘2016/17 Annual Global Fraud and Risk Report: Building Risk in a Volatile World’

BAT smokes out mega $49.4bn deal to acquire Reynolds

BY Fraser Tennant

A mega deal which creates the world's biggest listed tobacco company, British American Tobacco (BAT), has agreed a $49.4bn deal to acquire its US rival, Reynolds American Inc.

Under the terms of the agreement, Reynolds shareholders will receive for each Reynolds share $29.44 in cash and 0.5260 BAT ordinary shares, represented by BAT American Depository Receipts (ADRs). The cash component of the transaction will be financed by a combination of existing cash resources, new bank credit lines and the issuance of new bonds.

Shareholders in Reynolds since 2004, BAT will acquire the 57.8 percent of Reynolds it does not already own.

“BAT has consistently executed a winning strategy and has a proven track record of delivering strong results and returns for its shareholders while successfully investing for future growth,” said BAT’s chief executive, Nicandro Durante. “Our combination with Reynolds will benefit from utilising the best talent from both organisations. It will create a stronger, global tobacco and NGP business with direct access for our products across the most attractive markets in the world.” 

With a strong track record of successfully integrating acquisitions, BAT is committed to Reynolds American’s US workforce and manufacturing facilities. Moreover, the combined business will be the only truly global company in the fast growing Next Generation Products (NGP) category, with a unique opportunity to leverage scale and insights across the largest and fastest growing NGP markets and categories.

The BAT/Reynolds transaction will see leading brands such as Dunhill, Kent, Lucky Strike, Pall Mall, Rothmans, Newport and Natural American Spirit under common ownership, with direct access to the most attractive markets in the world. 

“We look forward to bringing together the two companies’ highly complementary cultures and shared commitment to innovation and transformation in our industry,” said Debra A. Crew, Reynolds American’s president and chief executive. “BAT is the best partner for Reynolds American’s next phase of growth, and together the two companies will create the leading portfolio of tobacco and next generation products for adult tobacco consumers.”

Unanimously approved by the Transaction Committee of independent Reynolds directors established to evaluate the BAT offer, as well as the boards of BAT and Reynolds, the transaction is expected to close during the third quarter of 2017.  

Mr Durante concluded: “We believe this transaction will drive continued, sustainable profit growth and returns for shareholders long into the future."

News: BAT agrees to buy Reynolds for $49 billion

Luxottica and Essilor agree $49bn merger

BY Richard Summerfield

Following years of speculation, eyewear brands Luxottica and Essilor have announced that they are to merge in an all stock deal worth $49bn, a move which will create a global superpower in the industry.

The new company is expected to have more than 140,000 employees and sales in more than 150 countries, once the deal has been completed. The companies expect the transaction to close in the second half of 2017, subject to regulatory and shareholder approval.

Under the terms of the merger, the newly combined giant will be known as EssilorLuxottica and will be led by Leonardo Del Vecchio, executive chairman of Luxottica Group.

Luxottica, which owns the Oakley and Ray-Ban brands, currently has a 14 percent market share of the eyewear industry, while Essilor has 13 percent. Around half of the combined company’s revenue is expected to be generated in the US. Europe will account for roughly 22 percent, Africa, Asia and the Middle East for around 18 percent.

In a statement announcing the deal, Hubert Sagnières, chairman and chief executive of Essilor, stated: “Our project has one simple motivation: to better respond to the needs of an immense global population in vision correction and vision protection by bringing together two great companies, one dedicated to lenses and the other to frames. With extraordinary success, Luxottica has built prestigious brands, backed by an industry state-of-the-art supply chain and distribution network. Essilor brings 168 years of innovation and industrial excellence in the design, manufacturing and distribution of ophthalmic and sun lenses. By joining forces today, these two international players can now accelerate their global expansion to the benefit of customers, employees and shareholders as well as the industry as a whole."

Mr Del Vecchio said: “With this agreement my dream to create a major global player in the eyewear industry, fully integrated and excellent in all its parts, comes finally true. It was some time now that we knew that this was the right solution but only today are there the right conditions to make it possible. The marriage between two key companies in their sectors will bring great benefits to the market, for employees and mainly for all our consumers. Finally, after 50 years, two products which are naturally complementary, namely frames and lenses, will be designed, manufactured and distributed under the same roof."

News: Luxottica and Essilor in 46 billion euro merger to create eyewear giant

Deals belie uncertainty

BY Richard Summerfield

2016 was a challenging but rewarding year for global M&A, according to a new report from Mergermarket.

Thanks in part to seismic shifts in global politics – namely the victory for populism in both the US and the UK – a decline in dealmaking volume may have been anticipated last year, and yet 2016 saw a remarkable amount of activity.

“Despite a series of political shockwaves during 2016 including the UK’s Brexit and Donald Trump’s surprise victory, global M&A fared well," said Mergermarket’s EMEA research editor, Katharine Dennys. “Global M&A managed to reach its third highest deal value since 2007. 2017 remains uncertain especially with the president-elect pledging to clamp down on high profile acquisitions such as the AT&T/Time Warner deal that was announced in October.”

The US was the most attractive investment destination, in terms of both deal value and volume last year, with 4951 deals announced in the jurisdiction worth $1.5 trillion, the second highest annual value recorded in the US since Mergermarket began keeping records in 2001. This continued activity came despite deal value dropping 22.9 percent compared to 2015. Indeed, 2016 saw 347 fewer deals announced. In total, 47.5 percent of global deal activity was targeted at the US.

Another notable trend through 2016 was the emergence of China as an oversea acquirer. Chinese companies announced 258 outbound deals last year worth $185.3bn, up markedly from $49.1bn in 2015.

European M&A saw a dip in activity, however, down 10.3 percent. Yet, despite this, inbound M&A into Europe reached an all-time high, with 1280 deals worth $410.7bn announced in 2016, up 35.6 percent compared to 2015.

Looking ahead, 2017 will likely continue to be an unstable year geopolitically. The issue of Brexit negotiations will continue to loom over Europe. Elections in France and Germany too will likely have an impact on European focused activity. The nascent Trump administration will no doubt have a significant impact on global dealmaking.

Elsewhere, the Chinese overseas deal rush may come to an abrupt end this year following the announcement that the Chinese government will scrutinise overseas transactions worth more than $2bn in an effort to reduce capital outflows that are a drain on foreign exchange reserves.

Report: Global and regional M&A: Q1-Q4 2016