Cisco Systems, a multinational technology conglomerate, has announced its acquisition of cybersecurity firm Splunk in a deal valued at approximately $28 billion. This marks Cisco’s largest deal to date and is expected to help the company reduce its reliance on its networking equipment business, which has experienced supply chain issues and a slowdown in demand amid the ongoing pandemic.
The acquisition is primarily focused on security and observability, two crucial areas for customers that are unlikely to see spending cuts. Splunk boasts strong capabilities in data observability and operates on a subscription-based pricing model. This aligns well with Cisco’s existing data-security partnership with Splunk, which serves prominent companies such as Coca-Cola, Intel, and Porsche.
This is not the first time Cisco and Splunk have discussed merging their companies. Previous talks had fallen apart, but now, Cisco is offering $157 in cash per share of Splunk, representing a 31% premium to its last closing price. As a result, Splunk’s shares traded up by more than 21%, reflecting uncertainty over potential regulatory scrutiny, while Cisco’s shares were down 4%.
Market analysts believe that this deal will give Cisco an edge in AI-enabled security, leading to accelerated revenue growth and gross margin expansion for the company in the first fiscal year after the deal closes. However, antitrust scrutiny is a possibility due to overlap in the security business. Despite this, Cisco remains confident about obtaining regulatory approval.
The acquisition has received unanimous approval from the boards of both Cisco and Splunk and is expected to be finalized by the end of the third quarter of 2024. Notably, it does not require approval from Chinese regulators. In the event that the deal falls through, Cisco will be obligated to pay Splunk a termination fee of $1.48 billion.
Advisers for Cisco include Tidal Partners, Simpson Thacher & Bartlett, and Cravath, Swaine & Moore LLP. On the other hand, Qatalyst Partners, Morgan Stanley, and Skadden, Arps, Slate, Meagher & Flom LLP have advised Splunk throughout the acquisition process.
This strategic acquisition is a significant move for Cisco, helping the company diversify its offerings and establish a stronger foothold in the cybersecurity market. As the deal progresses, industry observers will closely monitor the regulatory landscape to gauge the potential impact on both companies and the broader market.
