Last Thursday, Cisco Systems announced that it had agreed to a historic $28 billion dollar deal to buy cybersecurity firm Splunk in its biggest-ever acquisition that is expected to shore up its software business and leverage the artificial intelligence boom.
The deal marks the biggest technology transaction this year and will help Cisco reduce its reliance on its networking equipment business, which has faced supply chain issues and a post-pandemic reduction in demand in recent years.
“We’re excited to bring Cisco and Splunk together. Our combined capabilities will drive the next generation of AI-enabled security and observability,” says Chuck Robbins, chair and CEO of Cisco. “From threat detection and response to threat prediction and prevention, we will help make organizations of all sizes more secure and resilient.”
Robbins has led Cisco over recent years in efforts to reduce its traditional reliance on hardware and bolster its software and services offerings through deals.
Splunk’s heritage of helping enterprises build digital resilience will be an asset to Cisco’s strategy to securely connect everything to make anything possible. Together, the two established leaders in security, observability, and AI will help organizations be more secure and resilient.
“Uniting with Cisco represents the next phase of Splunk’s growth journey, accelerating our mission to help organizations worldwide become more resilient, while delivering immediate and compelling value to our shareholders,” says Gary Steele, president and CEO of Splunk.
“Together, we will form a global security and observability leader that harnesses the power of data and AI to deliver excellent customer outcomes and transform the industry. We’re thrilled to join forces with a long-time and trusted partner that shares our passion for innovation and world-class customer experience, and we expect our community of Splunk employees will benefit from even greater opportunities as we bring together two respected and purpose-driven organizations,” Steele adds.
Details of the Acquisition
Cisco has offered Splunk $157 in cash for each share, amounting to approximately $28 billion in equity value. The transaction is projected to be cash flow positive and gross margin accretive in the first fiscal year once the deal is closed as well as non-GAAP EPS accretive in the following year. Furthermore, the merger is expected to accelerate Cisco’s revenue growth and gross margin expansion.
Cisco has expressed optimism about the deal not running into major regulatory challenges despite some concerns that the overlap in the security business could invite antitrust scrutiny.
In an interview with Reuters, Robbins said, “We don’t have any history of having (antitrust) challenges in the U.S. and the two companies coming together is quite synergistic – in the technology integration there is not a ton of overlap, so there is not a lot of concern about this being some sort of roll up that is going to stop competition.”
The board of directors of both Cisco and Splunk have unanimously approved the acquisition, which is expected to close by the end of the third quarter of calendar year 2024, subject to regulatory approval and approval by Splunk shareholders.