[ad_1]
Cisco Systems Inc. is planning to acquire Splunk
SPLK,
in a $28 billion deal — or $157 a share in cash.
The deal would enhance Cisco’s
CSCO,
software offerings as the company continues to evolve its business, this time through the addition of big-data tools from Splunk that could help with threat prediction in the security space. Cisco is perhaps the largest security company by revenue.
Shares of Splunk were up 21% in Thursday afternoon trading to a recent $144.98 after closing Wednesday at $119.59.
“Splunk sits nicely in [Cisco’s] strategic wheelhouse” with strong growth for observability — a new buzzword in tech circles — and security a focus for Cisco, Daniel Newman, principal analyst at Futurum Research, said in an interview.
Observability is the ability to glean key insights from a great deal of data through various technologies to pinpoint a problem.
“This is a big step forward in our business transformation to a more recurring revenue model, especially with the addition of $4 billion in ARR [annual recurring revenue] from Splunk,” Cisco Chief Financial Officer Scott Herren said in an interview Thursday.
“This deal is a great strategic fit,” Herren said. “There is almost no product overlap, we have a good culture fit and Splunk provides strong financial returns.”
“Through the integration of Cisco’s extended detection and response platform, our vast security insights and Splunk’s security information and event management offering, we’ll be able to help our customers move from threat detection and response to threat prediction and prevention,” Cisco Chief Executive Chuck Robbins said in a call with analysts after the announcement.
As for observability functions, the companies’ “complementary capabilities will offer observability for the full IT stack from the application to the network across hybrid and multi-cloud environments.”
The merger announcement, made Thursday morning, is not entirely unexpected, as such a deal had been hypothesized for years, especially as Cisco moves to generate more of its revenue from software sales.
“We have pointed out on numerous occasions that Splunk is arguably the best M&A option for Cisco, helping to address strategic needs (including portfolio holes) and is operationally synergistic,” Piper Sandler analyst James Fish wrote. “The combination with AppDynamics and the Security portfolio is very compelling, with a key being the unification of these solutions post-deal close.”
He noted that the combination has the potential to “accelerate [Cisco’s] recurring software transition, while also materially moving the needle and giving a growth driver as the core business faces normalization headwinds.”
Evercore ISI’s Kirk Materne said he sees synergy potential, noting that the “obvious opportunity is for Splunk to take advantage of Cisco’s global distribution platform as well as partner channel.” Specifically, international markets are “probably the lowest hanging fruit, with only 1/3 of Splunk revenue coming from outside the US.”
Mizuho’s Gregg Moskowitz said that while Cisco would be gaining valuable intellectual property through the deal, Splunk has experienced challenges in recent years, including as customers postponed cloud migrations due to the economic climate. There has also been pushback to Splunk’s pricing.
“To that end, we’re curious if CSCO will make significant changes to pricing post deal closure in an effort to drive broader adoption/cross-sell, and particularly given that competition is fierce in SPLK’s end-markets,” he wrote.
Cisco’s stock, off 4.1%, was on pace for its largest single-day percentage decline since April 19, when it lost 4.5%.
The companies see opportunities to make use of data together to drive security benefits for their customers, they said in a release. They also see the merger as a way to “allow for greater investments in new solutions, accelerated innovation, and increased global scale to support the needs of customers of all sizes.”
The long-rumored Splunk acquisition, Cisco’s largest, is one of a slew made by Cisco this year. Previously, it snapped up cloud-security companies Valtix and Lightspin; Armorblox, a threat-detection platform; and identity-management company Oort. It has also acquired several smaller companies that have not been publicly announced.
Cisco expects that the deal will be cash-flow positive and accretive to gross margins in the first fiscal year after its close. It also expects that the deal will be accretive to Cisco’s adjusted earnings per share in the second year.
“Additionally, it will accelerate Cisco’s revenue growth and gross margin expansion,” the company said in its release.
While some analysts expressed concern about potential product overlap and regulatory scrutiny, Herren didn’t anticipate any problems and expects the deal to close in nine to 12 months.
The deal is anticipated to close in the third quarter of calendar 2024, and Cisco said it wouldn’t have an impact on its existing buyback program or dividend program.
[ad_2]
Source link
