The acquisition is one of Cisco’s largest, and continues an acquisition streak which has built out the company’s cybersecurity offerings.
Splunk shares rose 20% in premarket trading, while Cisco shares slipped 5%.
“From threat detection and response to threat prediction and prevention, we will help make organizations of all sizes more secure and resilient,” Cisco chair and CEO Chuck Robbins said in a statement. The deal is expected to close in the third quarter of 2024.
Cisco expects the deal to be cash flow positive and gross margin accretive in the first year following the closing of the acquisition; it will be accretive to Cisco’s non-GAAP earnings per share by the second year.
The company will finance the deal with a combination of cash and debt, Robbins said. “Together, we will become one of the largest software companies globally,” he said in a conference call with analysts.
Analysts had mixed responses to the deal, raising concerns about potential product overlap, regulatory scrutiny and the price Cisco paid for a company that had, from the perspective of one analyst, presented an “underwhelming” pivot to cloud.
In recent years, Splunk turned away from an on-premise “customer-managed” approach to focus on a cloud-oriented offering.
Robbins and Splunk CEO Gary Steele pushed back on those concerns. “We still have many large customers who are very dependent upon the capabilities that we allow for in a customer managed environment,” Steele told analysts.
Robbins added that the companies did not anticipate needing to obtain regulatory approval for Splunk’s China business.
Splunk is a cybersecurity company that helps enterprises monitor and analyze their data to minimize the risk of hacks and resolve technical issues faster. Cisco makes and sells telecommunications and networking equipment, as well as a complementary suite of of software.
Splunk CEO Steele had been with the company for a little more than a year. Prior to Splunk, Steele was CEO at Proofpoint, a cybersecurity firm.
If Cisco backs out of the deal or is forced to do so because of regulatory intervention, it will pay Splunk a termination fee of $1.48 billion, according to a regulatory filing. If Splunk backs out of the deal for any reason, it will pay a $1 billion breakup fee to Cisco.
In 2023 alone, Cisco has acquired four companies: Armorblox, a threat detection platform, Oort, which does identity management, and Valtix and Lightspin, both cloud security companies.
Tidal Partners, Simpson Thacher, and Cravath, Swaine & Moore advised Cisco. Qatalyst Partners, Morgan Stanley, and Skadden, Arps, Slate, Meagher & Flom advised Splunk.