Cisco to buy cybersecurity firm Splunk for $28 billion

On September 21, Cisco Systems announced its agreement to acquire cybersecurity firm Splunk for approximately $28 billion. This deal, the largest technology transaction of the year, aims to bolster Cisco’s software business and tap into the growing artificial intelligence market.

Cisco’s move to acquire Splunk is part of its strategy to reduce its reliance on its networking equipment business, which has faced supply chain challenges and a slowdown in demand due to the post-pandemic landscape. The merger will combine two companies specializing in security and observability, critical areas for customers concerned about cybersecurity threats.

Under the leadership of CEO Chuck Robbins, Cisco has been shifting its focus from hardware to software and services through various acquisitions. Splunk is known for its expertise in data observability, helping companies monitor their systems for cybersecurity risks and threats, with a subscription-based pricing model.

Although the two companies had discussed mergers in the past, this deal represents a new agreement. Cisco offered $157 in cash for each share of Splunk, which is a 31% premium to Splunk’s last closing price. Splunk’s shares initially traded up more than 21% but remained below the offer price of $157, reflecting some uncertainty about regulatory scrutiny, while Cisco’s shares declined by 4%.

Cisco, based in San Jose, California, already has a data-security partnership with Splunk, and Splunk boasts more than 15,000 customers, including notable companies like Coca-Cola, Intel, and Porsche. Despite a surge in revenue growth in the previous year, Splunk faced a slowdown in demand in 2023 due to rising interest rates and inflation.

The acquisition is expected to accelerate revenue growth and gross margin expansion for Cisco in the first fiscal year following the deal’s closure. While some analysts expressed concerns about potential antitrust scrutiny due to the overlap in the security business, Cisco downplayed such worries, stating that the deal was not expected to face significant regulatory hurdles.

The transaction, unanimously approved by both companies’ boards, is set to conclude by the end of the third quarter of 2024, pending regulatory approvals. It does not require approval from Chinese regulators and is anticipated to be cash positive, adding $4 billion in annual recurring revenue to Cisco. In the event the deal is canceled, Cisco would be required to pay Splunk a termination fee of $1.48 billion.