On Thursday, Cisco Systems (CSCO.O) announced its largest acquisition, buying cybersecurity startup Splunk (SPLK.O) for $28 billion to boost its software business and leverage artificial intelligence.
The transaction will lower Cisco’s reliance on its enormous networking equipment business, which has struggled with supply chain challenges and post-pandemic demand.
Cisco offered $157 per Splunk share, a 31% premium to the company’s closing price.
Cisco fell roughly 5%, while Splunk rose 23% to $9 below the offer price before the opening bell.
“Combined, Cisco and Splunk will become one of the world’s largest software companies and accelerate Cisco’s business transformation to more recurring revenue,” stated a statement.
Cisco has a data-security relationship with Splunk, with over 15,000 customers, including Coca-Cola (KO.N), Intel (INTC.O), and Porsche.
Splunk faced an industry-wide decrease in demand in 2023 because of rising interest rates and inflation after a 40% sales growth last year.
Cisco, a hardware company, expects its acquisition to boost sales and gross margins in the first fiscal year.
According to the Wall Street Journal, Cisco failed to seek more than $20 billion for Splunk in 2022.
The synergistic business Cisco bought was affordable. It benefits both sides, “Great Hill Capital chairman Thomas Hayes remarked. “This will give Cisco an AI-enabled security advantage.”
However, security overlap may attract antitrust attention. One analyst criticized Splunk’s “underwhelming” cloud switch.
The Cisco and Splunk boards unanimously authorized the merger, expected to close by the third quarter of 2024, subject to regulatory approvals. It won’t need China’s approval.
If the contract is scrapped, Cisco must pay $1.48 billion.
Tidal Partners, STM, and CSM advised Cisco. Splunk was advised by Qatalyst Partners, Morgan Stanley, and Skadden, Arps.