Cisco has its largest-ever acquisition, revealing plans to purchase cybersecurity software firm Splunk for $28 billion in an all-cash transaction, equivalent to $157 per share. The announcement was made on Thursday. In early trading on Thursday, Splunk’s stock surged by 21%, while Cisco’s shares dipped by 3.3%.
Cisco’s Chairman and CEO, Chuck Robbins, stated in a press release, ‘From enhancing threat detection and response to advancing threat prediction and prevention, we aim to enhance the security and resilience of organizations of all sizes.
This acquisition is part of Cisco’s ongoing strategy to expand its cybersecurity portfolio, and it is expected to be finalized in the third quarter of 2024, marking a continuation of the company’s extensive acquisition campaign in recent months.
Cisco anticipates that the acquisition will yield positive cash flow and improved gross margins within the initial year after the deal’s completion. Additionally, it is expected to contribute to an increase in Cisco’s non-GAAP earnings per share by the second year.
Robbins expressed his expectation that the synergies between the two organizations would become evident and substantial within a span of 12 to 18 months. He further elaborated that the financing for the acquisition would be a combination of both cash and debt.
In a conference call with analysts, Robbins emphasized, “Collectively, we are poised to become one of the largest software companies on a global scale.”
The deal received a varied reception from analysts, with some expressing reservations about potential product redundancy, regulatory examination, and the valuation of the acquisition, especially given what one analyst described as an “unimpressive” shift towards cloud services from Splunk.
Points About Cisco’s Purchase of Splunk
In recent times, Splunk had shifted its strategy away from a “customer-managed” on-premises approach, concentrating more on cloud-based offerings. But Robbins and Splunk CEO Gary Steele dismissed those concerns. “We still have a lot of large customers that rely on a lot of the capabilities that we offer in the customer management environment,” Steele told analysts.
Robbins also noted that companies do not feel the need to seek regulatory approval. Splunk. acceptance.
Splunk focuses on network security, helping businesses monitor and analyze data to reduce the risk of network attacks and resolve problems. Cisco, meanwhile, manufactures and sells telecommunications and networking equipment supported by software products.
Splunk CEO Gary Steele has only been running the company for a year. Before joining Splunk, Steele served as CEO of another cybersecurity firm, Proofpoint. In 2021, Proofpoint was acquired by Thoma Bravo in a deal valued at $12.3 billion. Steele will become a member of Cisco’s board of directors after the acquisition is completed, according to Cisco.
If Cisco pulls out of the contract or regulatory restrictions force it to do so, the company will have to pay Splunk $1.48 billion in severance payments, according to the management document. Instead, Splunk will have to pay Cisco a $1 billion separation fee if it is terminated for any reason.
In 2023 alone, Cisco completed the acquisition of four companies. Armorblox, a threat detection platform Oort specializes in self-regulation and Valtix and Lightspin, both major players in cloud security. Before the Splunk acquisition, Cisco’s most significant acquisition was Scientific Atlanta for approximately $7 billion.
Tidal Partners, Simpson Thacher and Cravath, Swaine & Moore advised Cisco on this transaction. Splunk is advised by Qatalyst Partners, Morgan Stanley and Skadden, Arps, Slate, Meagher & Flom.
Conclusion
Cisco’s $28 billion acquisition of Splunk is a move that makes it its largest deal yet and solidifies its position in cybersecurity. While the initial business wasn’t good, Cisco aims to improve global security through the acquisition and hopes it will yield business benefits. Analysts are divided, but Cisco’s strategy for expanding its cybersecurity portfolio remains solid. This acquisition is an important step in changing the cybersecurity landscape.
