Cisco has announced its acquisition of cybersecurity software company Splunk for $157 per share in a cash transaction valued at approximately $28 billion, marking its largest-ever acquisition. On the day of the announcement, Splunk’s stock surged by 21%, while Cisco’s shares experienced a 4% decline.
Splunk’s technology is dedicated to assisting businesses in monitoring and analyzing their data, enhancing cybersecurity by minimizing the risk of breaches and expediting the resolution of technical issues. Cisco, a prominent manufacturer of computer networking equipment, has been actively expanding its cybersecurity division to meet customer demands and drive growth.
Cisco’s CEO, Chuck Robbins, emphasized the significance of artificial intelligence in safeguarding networks and highlighted the potential of Splunk’s AI capabilities for this purpose. Robbins stated, “Our combined capabilities will drive the next generation of AI-enabled security and observability, encompassing threat detection and response as well as threat prediction and prevention, ultimately enhancing the security and resilience of organizations of all sizes.”
The deal is anticipated to conclude in the third quarter of 2024, with Cisco expecting improvements in gross margins in the first year and non-GAAP earnings in the second year following the acquisition.
The purchase price represents approximately 13% of Cisco’s market capitalization, a significant figure for a company that has traditionally avoided large-scale acquisitions. Prior to Splunk, Cisco’s most substantial acquisition was the $6.9 billion purchase of cable set-top box manufacturer Scientific Atlanta in 2006, when Cisco’s market cap was just over $100 billion. As the public cloud has gradually encroached on Cisco’s conventional backend business, the company has sought new and substantial revenue streams, with cybersecurity emerging as a key focus.
In fiscal year 2022, Cisco rebranded its core switching and routing business from “Infrastructure Platforms” to “Secure, Agile Networks,” underscoring the importance of integrating security into networking equipment. The company also established a dedicated reporting unit, “End-to-End Security,” focused specifically on security products. In that fiscal year, revenue from the core business increased by 22%, reaching $29.1 billion, while the security unit achieved sales of $3.9 billion, a 4% increase.
Cisco’s stock performance has lagged behind the Nasdaq this year, with a 12% increase compared to the Nasdaq’s 27% surge. Over the past five years, Cisco’s stock has underperformed the broader sector, growing by approximately 10% compared to the Nasdaq’s 66% gain.