In a strategic move, technology giant Cisco has acquired cybersecurity firm Splunk, a deal injecting an impressive $4 billion into Cisco’s annualized recurring revenues.
This acquisition propels Cisco further into the realm of AI-enabled data security and observability, solidifying its position in the software industry with a cash value of $157 per share, totaling a substantial $28 billion in equity.
San Jose, California-based Cisco already has a data-security partnership with Splunk. Media reports say Splunk has more than 15,000 customers include many prominent companies such as Coca-Cola, Intel and Porsche.
Rajesh Muru, Lead Enterprise Security Analyst at GlobalData, commended Cisco’s consistent strategic announcements in security and observability over the past year, emphasizing their drive towards end-to-end security through real-time data and AI integration. Muru noted the significance of this acquisition in advancing AI capabilities, enhancing security, and expanding full-stack observability.
However, GlobalData’s analysis brings attention to the challenge of seamlessly integrating the two entities to unlock their combined potential fully. Muru mentioned that Splunk’s loyal customer base might experience uncertainty due to potential product consolidation resulting from the acquisition, as Splunk has established itself as a go-to tool in AIOps observability.
The acquisition aligns with a growing trend of acquisitions in the observability and AIOps sector, exemplified by recent transactions such as New Relic’s acquisition by Francisco Partners and TPG for $6.5 billion and Hewlett Packard Enterprise’s acquisition of OpsRamp for $39 billion, among others. Observability and AIOps capabilities have become a focal point for investors and tier one vendors looking to enhance their extended detection and response (XDR) security capabilities.
While Cisco has pulled off sizable acquisitions in the past, its takeover of Splunk is by far the biggest in its nearly 40-year history, Reuters news report said. In 2012, Cisco bought TV software company NDS for $5 billion. In 2017, Cisco bought business software firm AppDynamics Inc for about $3.7 billion.
Some analysts said the overlap in the security business could invite antitrust scrutiny, but Cisco said it was not concerned about the deal facing major regulatory hurdles.
“We don’t have any history of having (antitrust) challenges in the U.S. and the two companies coming together is quite synergistic – in the technology integration there is not a ton of overlap, so there is not a lot of concern about this being some sort of roll up that is going to stop competition,” Cisco CEO Chuck Robbins told Reuters.
The deal will not require approval from Chinese regulators. The deal is expected to be cash positive and will add $4 billion in annual recurring revenue, Cisco executives said on a conference call with analysts. If the deal is shelved, Cisco will have to pay Splunk a termination fee of $1.48 billion.
GlobalData recognizes the synergy between Cisco and Splunk’s product lines in the security and observability space. Cisco stands to gain from Splunk’s robust AI observability capabilities for hybrid environments, enabling stronger integration and visibility. Splunk’s extensive data and security information and event management (SIEM) capabilities complement Cisco’s XDR, forming a compelling AI-driven end-to-end security and observability solution for the market.
Rajesh Muru highlighted the potential product-related challenges Cisco may face post-acquisition, particularly in determining the forefront product in its strategy and addressing customer reservations. He also emphasized the possibility of intensified competition in the security space, as leading tier one vendors seek to acquire innovative cloud observability players.
In conclusion, Cisco’s strategic acquisition of Splunk marks a significant advancement in the domain of AI-driven security and observability, while presenting the company with the challenge of effectively integrating and aligning their product strategies to realize the full potential of this partnership.