Dynatrace (NYSE:DT) said it plans to acquire AI observability company Arize for total consideration of $915 million, consisting of approximately $815 million in cash and replacement equity awards for Arize employees who join Dynatrace.
The transaction is expected to close by the end of September or in early October, subject to customary closing conditions and regulatory approvals. Dynatrace said it has sufficient cash on hand and access to its existing credit facility to fund the acquisition, and said its plans for share repurchases are unchanged.
Broader AI observability portfolio
McConnell said enterprises need to assess whether AI systems are functioning, whether their outputs are accurate and trustworthy, and whether agentic systems are delivering their intended outcomes. He said AI systems can fail differently than traditional software, including through plausible but incorrect, biased or factually wrong outputs that may not generate conventional infrastructure alerts.
Arize adds capabilities in AI and agent evaluation, experimentation and agentic workflow optimization across development and production, according to Dynatrace. Those capabilities are intended to complement Dynatrace’s existing offerings in application and infrastructure observability, model performance, AI usage and cost, and business impact.
“This is not a point solution,” McConnell said. “It is a portfolio expansion that positions Dynatrace to better capture a greater share of AI spending in this rapidly emerging category.”
Dynatrace said it had already been investing internally in AI observability for roughly 18 months. McConnell said the acquisition would accelerate its roadmap by adding areas where Arize has developed deeper capabilities, including LLM experimentation, evaluations and observability for issues such as model drift and hallucinations.
Developer reach and open-source strategy
A central element of the deal is Arize’s reach among AI developers through its open-source Phoenix platform. McConnell said Phoenix has millions of monthly downloads and is used for LLM evaluations. Arize also has an open-source standard called OpenInference, Dynatrace said.
Dynatrace expects the acquisition to extend its reach into developer-led buying motions and AI-native workloads. McConnell said the company views developers as increasingly influential in observability decisions as organizations move observability earlier in the software development cycle.
Arize currently has roughly 200 customers, with approximately 20% to 30% overlap with Dynatrace customers, Chief Financial Officer Jim Benson said. The companies already have shared customers across industries including automotive, communications, e-commerce and financial services, according to Dynatrace.
Dynatrace intends initially to let Arize operate with substantial independence rather than immediately fully integrating its technology. McConnell said the near-term priority is to preserve Arize’s growth and product-development velocity while integrating go-to-market efforts. Arize co-founder Jason is expected to join Dynatrace’s leadership team and lead Arize as a business unit, while Arize’s sales organization will have a dotted-line relationship to Dynatrace Chief Revenue Officer Dan Zugelder.
Dynatrace said it expects to eventually integrate Arize into its Dynatrace Platform Subscription, or DPS, offering, though Benson said that will not occur on day one. He added that Arize’s revenue-recognition model is similar to Dynatrace’s: annual contracts, ratable revenue recognition and advance billing.
Expected financial impact
Benson said Arize is a small but rapidly growing business. Dynatrace expects the acquisition to be immediately accretive to annual recurring revenue growth and to contribute approximately 200 basis points to Dynatrace’s ARR growth rate in fiscal 2027, or roughly $40 million.
Dynatrace previously guided for fiscal 2027 ARR growth of 15.5% to 16.5%, Benson said. The company plans to provide additional information on Arize’s growth profile following the transaction close and during its second-quarter earnings call in early November.
On profitability, Dynatrace expects Arize to dilute non-GAAP operating margin by about 175 basis points in fiscal 2027. However, Benson said anticipated synergies should drive incremental operating-margin expansion from fiscal 2027 levels in fiscal 2028 and beyond.
The company does not expect a material impact on its second-quarter guidance because of the anticipated close timing. Dynatrace executives said the acquisition is designed to create cross-sell and upsell opportunities in both customer bases while adding access to AI-native companies and the broader developer community.
About Dynatrace (NYSE:DT)
Dynatrace is a global software intelligence company specializing in application performance management (APM), cloud infrastructure monitoring, and digital experience management. Its flagship offering, the Dynatrace Software Intelligence Platform, leverages artificial intelligence to provide real-time observability across distributed environments, including on-premises data centers, private clouds, public clouds and hybrid deployments. Organizations rely on Dynatrace to detect anomalies, troubleshoot performance issues and optimize end-user experiences through automated root-cause analysis powered by the company’s engine, Davis.
The Dynatrace platform comprises modules for full-stack application monitoring, digital experience monitoring, infrastructure monitoring and business analytics.
