Cisco acquires Splunk: Mega deal is worth $28 billion
The network specialist is now making the most expensive purchase in its company history. With the takeover, Cisco plans to become one of the largest software companies in the world. Cisco plans to expand its software business with a deal worth billions. On Sept. 21, 2023, the company announced that it would acquire IT security specialist Splunk for a sum of $157 per share in cash. It is one of the most significant deals in the technology industry, worth about $28 billion (€26.3 billion). In a statement, the group stressed that this cooperation...
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'post_content' => 'The network specialist is now making the most expensive purchase in its company history. With the takeover, Cisco plans to become one of the largest software companies in the world.
Cisco plans to expand its software business with a deal worth billions. On Sept. 21, 2023, the company announced that it would acquire IT security specialist Splunk for a sum of $157 per share in cash. It is one of the most significant deals in the technology industry, worth about $28 billion (€26.3 billion).
In a statement, the group stressed that this cooperation will allow them to become one of the largest software companies in the world. In addition, the acquisition will accelerate the transformation of the business model to a recurring revenue, which will come from subscription fees for the cloud service. The acquisition has already been approved by the boards of directors of both companies. Regulators and Splunk shareholders have not yet approved. Cisco management expects the deal to be closed in Q3 2024.
What does the deal mean for Cisco?
Splunk gives Cisco an IT security specialist that could be a good fit for its security business, helping customers better understand security threats while analyzing reams of log data to solve other problems, such as tracking system failures or troubleshooting fundamental problems across a wide range of enterprise systems.
Cisco has been looking to diversify for several years, expanding its business to include software services and services that are less cyclical, such as hardware sales. For example, Cisco provides a program called Digital Collaboration. Here, it becomes evident that IT security is becoming increasingly important, so much so that revenue from this segment grew by 4% to $3.9 billion in 2023.
Back in May, CEO Chuck Robbins had emphasized, "Cybersecurity is a very important area for us that we continue to strengthen." Accordingly, the acquisition fits well in terms of strategy. AI will also become an important driver for Cisco\'s future business, he said. The CEO highlighted the AI aspect of this deal, saying that these days there always has to be an AI function involved, in this case with a strong focus on cybersecurity. "Our combined capabilities will boost the next generation of AI-powered security and observability. From threat detection and response to threat prediction and prevention, we will help make organizations of all sizes more secure and resilient," Robbins said in a statement.
Cisco expects the deal to have a positive impact on cash flow and gross margin in the first fiscal year after closing, and eventually contribute to an increase in adjusted profit. Splunk\'s 2022 revenue increased 20% to $2.7 billion, with a significant portion coming from subscription fees.
Splunk completes Cisco\'s portfolio
"Splunk\'s security capabilities complement Cisco\'s existing portfolio," the group said. Together, they can provide visibility into devices, applications and cloud systems. The goal is for companies to not only detect threats, but also predict and prevent them. Splunk specializes in analyzing and monitoring machine and IT system data. The software has the ability to read data from network devices, servers or applications to identify and prevent cyberattacks. Splunk offers a platform for data analysis, where companies can monitor access to IT systems in real time and detect irregularities, among other things.
Industry analysts rate the deal as positive
Ray Wang, founder and principal analyst at Constellation Research, agrees that the companies have the potential to be a good fit. "It\'s a natural synergy if you can combine threat detection and security with AI and observability," Wang said. Cisco\'s network telemetry and Splunk\'s Observability platform provide customers with a comprehensive view of their data. Technalysis Research\'s Bob O\'Donnell also believes the acquisition makes a lot of sense, as Splunk will allow Cisco to improve its own IT security portfolio and also expand network monitoring. Analyst Dan Ives of investment bank Wedbusch said, "This is the right move at the right time." He said Cisco\'s acquisition would attempt to take market share from established giants in the cybersecurity business such as Palo Alto Networks, Checkpoint, Crowdstrike and Microsoft.
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