Heard a rumor that there was a bidding war with Microsoft and IBM in the hunt so somehow 16x revenue makes sense.

Very interesting. Happy for them and if that rumor is true I'd expect New Relic to pop on that. Especially as their growth is as good, burn is less and have been well managed too.

At best this removes a potential suitor. If MSFT was trying to buy AppDynamics they may go after an alternative, but that's the only scenario where you revalue New Relic in light of this deal.

NEWR up 20% pre market.

Looks like the initial reception is positive, yep (more like 10-15%, it'll be interesting to see where it settles). If it goes up enough I'll short it, too -- horribly overpriced tool. :)

Does AppDynamics have some appreciable lock in that would make Microsoft want to buy them, rather than compete?

For one, AppDynamics contracts are usually three years.