Cisco to Acquire Splunk for Approx. $28 Billion

Cisco is set to acquire Splunk for $157 per share in cash, which totals an equity value of about $28 billion.

The acquisition aims to transition organizations from mere threat detection and response to advanced threat prediction and prevention.

It is expected that the acquisition will turn Cisco and Splunk into a top software company, boosting Cisco’s recurring revenue.

Both companies are seen as good work environments and share similar values, cultures, and talented teams.

Splunk’s CEO, Gary Steele, will join Cisco’s Executive Leadership Team under the direction of CEO Chuck Robbins.

The acquisition supports Cisco’s mission to securely connect everything and enables digital resilience through a combination of AI, security, and observability.

Splunk’s security capabilities are seen as complementing Cisco’s current portfolio, and the acquisition aims to expand security analytics and cloud coverage.

The transaction will be cash flow positive and gross margin accretive in the first fiscal year after closing, with non-GAAP earnings per share (EPS) accretive in the second year.

Cisco and Splunk will enhance observability in hybrid and multi-cloud environments to provide their customers with a better application experience.

The deal is expected to close by the end of the third quarter of the calendar year 2024, pending regulatory and shareholder approvals.

Tidal Partners LLC, Simpson Thacher & Bartlett LLP, and Cravath, Swaine & Moore LLP are advising Cisco; Qatalyst Partners and Morgan Stanley & Co. LLC alongside Skadden, Arps, Slate, Meagher Flom LLP are advising Splunk.

An investor conference call to discuss the transaction is scheduled for September 21, 2023.

Cisco’s forward-looking statements suggest beliefs and assumptions about financial performance, integration, and benefits of the acquisition, subject to known and unknown risks.

Splunk’s forward-looking statements address expectations and potential benefits, risks relating to the proposed transaction, and the impact of external factors on the business.

Non-GAAP financial measures in the press release have limitations and should be evaluated alongside the corresponding GAAP measures.

Media and investor contacts are provided for both companies, with additional information on innovation impacts shared.

Here is My Opinion

Here is my opinion on Cisco’s acquisition of Splunk:

The $28 billion acquisition makes strategic sense for Cisco reflecting the company’s push into software and services.

Splunk is a leader in analyzing machine data through its security, IT, and internet of things solutions.

This aligns well with Cisco’s increased focus on software and services to complement its traditional networking hardware business.

Splunk’s data analytics capabilities can enhance Cisco’s offerings in areas like security, monitoring, and application performance.

However, successful integration will be key. Cisco has struggled with integrating some past acquisitions like Jasper.

Splunk’s culture and products are very different from Cisco’s, so managing integration and avoiding customer churn will be critical, although I believe Splunk will likely operate as a new business unit within Cisco, similar to how AppDynamics operates today after being acquired by Cisco.

Overall I think this deal has potential to strengthen Cisco’s competitiveness, especially against cloud providers.

But Cisco will need to effectively leverage Splunk’s data analytics expertise across its product portfolio and make customers comfortable with Splunk becoming part of Cisco.

Managing the integration process and customer relationships will determine if Cisco can realize the full benefits from this substantial investment.

The price Cisco is paying is high, so Cisco will need to achieve significant revenue and cost synergies to justify the valuation.

But with technology spending shifting from hardware to software, acquiring Splunk’s data analytics capabilities makes long-term strategic sense.