Cisco acquired Splunk, a Cybersecurity Firm, for $28 Billion; A Record Breaking Acquisition

In its most significant acquisition to date, Cisco has announced its purchase of cybersecurity software firm Splunk for approximately $28 billion, equivalent to $157 per share, in an all-cash transaction. This strategic move underscores Cisco’s commitment to bolstering its cybersecurity capabilities and expanding its presence in the rapidly evolving cybersecurity market. Notably, Splunk’s stock witnessed a notable surge, concluding Thursday with a remarkable 21% increase in its share price. Conversely, Cisco’s stock experienced a modest downturn, closing the day with a 4% decline in its share value.

Splunk’s technology plays a pivotal role in aiding enterprises in data monitoring and analysis, effectively reducing the vulnerability to cyber threats and accelerating the resolution of technical challenges. Meanwhile, Cisco, a longstanding global leader in computer networking equipment manufacturing, has consistently fortified its cybersecurity division to address the evolving needs of its customers and facilitate its growth trajectory. Cisco’s CEO, Chuck Robbins, has underscored the significance of artificial intelligence (AI) and highlighted the intrinsic AI capabilities embedded in Splunk’s technology for safeguarding networks. This strategic alignment emphasizes Cisco’s commitment to harnessing the power of AI as it integrates Splunk’s capabilities to enhance network security.

Chuck Robbins, Cisco’s CEO, expressed in a statement, “The amalgamation of our capabilities will propel the evolution of AI-powered security and observability. Ranging from detecting and responding to threats to foreseeing and thwarting them, we are committed to enhancing the security and resilience of organizations, regardless of their size.” The anticipated closure of the deal is set for the third quarter of 2024, with Cisco anticipating an immediate enhancement in gross margins during the first year and a positive impact on non-GAAP earnings in the second year following the acquisition.

The acquisition price represents approximately 13% of Cisco’s market capitalization, a substantial figure for a company known for its historical avoidance of major blockbuster transactions. Until the acquisition of Splunk, Cisco’s largest-ever deal had been the acquisition of cable set-top box manufacturer Scientific Atlanta for $6.9 billion in 2006, a time when Cisco’s market capitalization was slightly above $100 billion. However, the evolving landscape, with the public cloud encroaching on Cisco’s traditional backend business, has necessitated the exploration of new and substantial sources of revenue. Among these, cybersecurity has emerged as the company’s most significant strategic focus and investment.

In the fiscal year 2022, Cisco underwent a strategic transformation by renaming its fundamental switching and routing business segment from “Infrastructure Platforms” to “Secure, Agile Networks.” This change underscored the company’s emphasis on integrating security measures into networking equipment. Cisco also established a dedicated reporting unit called “End-to-End Security,” exclusively focused on security products. Within the core business, revenue surged by an impressive 22% in the fiscal year ending on July 29, reaching $29.1 billion, while the security unit recorded a 4% sales increase, totaling $3.9 billion.

Despite these developments, Cisco’s stock performance in the market has lagged behind the Nasdaq index this year, with shares experiencing a 12% increase compared to the Nasdaq’s robust 27% surge. Over the past five years, Cisco’s stock has fared even less favorably when compared to the broader sector, registering a modest 10% growth during that period, while the Nasdaq index posted a substantial gain of 66%. This performance divergence reflects the challenges and evolving dynamics faced by Cisco in the rapidly changing technology landscape.