Cisco Systems, a leading technology company, has announced its acquisition of cybersecurity firm Splunk in a deal worth approximately $28 billion. This marks Cisco’s biggest-ever deal and aims to strengthen its software business while taking advantage of the growing demand for artificial intelligence.
The acquisition is seen as a strategic move to reduce Cisco’s reliance on its networking equipment business, which has faced challenges in recent years due to supply chain issues and a post-pandemic slowdown. By merging with Splunk, Cisco aims to tap into the critical areas of security and observability, which are unlikely to see spending cuts from customers due to the increasing importance of cybersecurity threats.
Splunk specializes in data observability, helping companies monitor their systems for cybersecurity risks and other threats. The company operates on a subscription-based pricing model for customers. This acquisition will accelerate revenue growth and gross margin expansion at Cisco in the first fiscal year after the deal closes.
While the two companies have had merger discussions in the past, this deal comes to fruition with Cisco offering $157 in cash for each share of Splunk, representing a 31% premium to the company’s last closing price. Splunk’s shares initially traded up more than 21% but remained below the offer price, reflecting some uncertainty about regulatory scrutiny. Cisco’s shares, on the other hand, fell 4% following the announcement.
Cisco already has a data-security partnership with Splunk, and the acquisition is expected to strengthen their collaboration. Splunk boasts an impressive customer base, including prominent companies like Coca-Cola, Intel, and Porsche.
Although the overlap in the security business could attract antitrust scrutiny, Cisco expressed confidence that the deal would not face major regulatory hurdles. Approval from regulatory authorities is expected to be completed by the end of the third quarter of 2024.
If the deal falls through, Cisco will be required to pay Splunk a termination fee of $1.48 billion. Despite potential challenges, analysts believe the acquisition is a win-win for both parties and will give Cisco an advantage in AI-enabled security moving forward.
This acquisition marks Cisco’s largest deal in its almost 40-year history. The company has previously made sizable acquisitions, including the purchase of TV software company NDS in 2012 for $5 billion and business software firm AppDynamics Inc in 2017 for approximately $3.7 billion.
The deal was unanimously approved by the boards of both Cisco and Splunk, and financial advisers included Tidal Partners, Simpson Thacher & Bartlett, Cravath, Swaine & Moore LLP for Cisco, and Qatalyst Partners, Morgan Stanley, Skadden, Arps, Slate, Meagher & Flom LLP for Splunk.
Overall, this acquisition positions Cisco as a stronger player in the software market and allows it to capitalize on the increasing demand for cybersecurity and artificial intelligence services.
Reporting by Milana Vinn; Writing by Anirban Sen; Editing by Anil D’Silva and Lisa Shumaker