Cisco Buys Security Firm Splunk for $28 Billion – Did It Overpay?
Cisco announced a $28 billion cash deal to buy Cyber Security firm Splunk. The deal is roughly six times Splunk’s revenue – and a 30% premium over its current stock price.
Cisco is in a race to add recurring revenue, as well as bolster its security portfolio. This blog analyzes the deal and where Cisco goes next to drive software revenues.
Did Cisco Overpay for Splunk?
First, Cisco tried before to buy Splunk for $20 Billion and was rejected. Our take is that at 6x revenue, at first glance it seems like a large price to pay for what represents a $3 Billion run rate software firm.
However, for Cisco – any deal that shifts to recurring software revenues is a good. Cisco could have gotten other firms for less, but it seems to have set its sites on Splunk.
Is Splunk Just the Start for Cisco?
Aragon Research feels Cisco will need to acquire more Cyber Security firms to round out its Cyber Security offering. There are more product companies it could acquire, but because Private Equity firms are in play with CyberSecurity Software firms, a premium is expected. So no, Cisco didn’t overpay because valuations for CyberSecurity firms are high.
As an example, Cybersecurity provider Proofpoint, which is known for its flagship email security, is one example of another potential acquisition However, they are owned by Thoma Brava – who will want a premium of at least 4-6x revenues of around $1.7B.
Cisco – Absorbing Splunk – and Driving ARR
Cisco would be wise to keep moving on deals – there are smaller cybersecurity deals to be had However, in the short term – with Splunk – revenue contributions will be key. We expect this deal to help juice the Multi-Cloud Security efforts that Cisco unveiled at Cisco Live this past June.
Diving Further Into AI?
Cisco partners for AI and it now has AI embedded in nearly every product line. That said, Cisco has the opportunity to add more predictive capabilities to its portfolio – and it could do that via strategic acquisitions.
It actually has done that in the Webex Division – with Voicea and Babble Labs as two of its stronger AI acquisitions in the last five years. That said there are more opportunities to continue this.
Bottom Line
Cisco paid a premium to buy Splunk – but it had no choice. While this should help to bolster Cisco’s desire to boost recurring revenues for the long term. Splunk will help with this, but Cisco will need to do more deals to make the shift to larger software revenues.
The Executive Guide to AI – Aragon Foresight AI
The rush to AI is here! With the growing interest in ChatGPT, enterprises are searching for answers on how to put AI to work.
Aragon Research has been covering artificial intelligence for over seven years. In this Demo Day on Thursday, September 28th, Aragon CEO and Founder, Jim Lundy, will provide a deep dive into Aragon Research’s coverage of AI and provide a demo of our service that we refer to as Foresight.
Topics we will cover in this webinar include:
- AI trends business leaders need to know.
- Why intelligence matters in every business unit.
- Demo of Aragon Foresight and how enterprises can leverage it for their business.
Decoding the Role:Artificial Intelligence Architect vs. Solution & Application Architects
Adopting Artificial Intelligence-enabled technologies is as much a people, process, organization, and strategy issue as it is about technology. The best AI-enabled solution will go nowhere if it doesn’t address a future-state business need and is accepted by users. Adopting AI-based solutions requires outside-in customer, user, and business thinking; not inside-out technology first thinking. Adopting AI requires a business and future-focused architect to help guide the integration of people, process, information, solutions and AI.
- Why is an AI Architect Needed?
- How is an AI Architect Different from a Solution or Application Architect?
- What Types of EA principles should AI Architects define?
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