Cisco Buys Security Firm Splunk for $28 Billion – Did It Overpay?
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.
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 rush to AI is here! With the growing interest in ChatGPT, enterprises are searching for answers on how to put AI to work.
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Topics we will cover in this webinar include:
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- 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?