Cisco Systems (NASDAQ:CSCO) premium-priced cash takeover of Splunk Inc (NASDAQ:SPLK) may be the first ripple in a ‘tidal wave’ of software M&A heading for the market as AI-related catalysts drive deal-making, that’s according to analysts at California-based stockbroker Wedbush.
Cisco has agreed to pay Splunk shareholders $157 per share, versus Wednesday’s closing price of $119.59.
The deal is unanimously approved by the boards of both companies and, values Splunk at $28 billion.
Wedbush analyst Daniel Ives, in a note, described it as “a monster deal” that “will send a ripple impact across the software/cyber security universe”.
“This speaks to a massive wave of M&A we see on the horizon over the next 6-9 months in the broader tech/software space as more strategic and financial M&A starts to take hold in a Rubik's Cube macro,” the Wedbush analyst said.
Cisco caught everyone off guard
“For [CEO Chuck] Robbins and Cisco there is a window of opportunity to make sure that Microsoft, Google, Oracle, Amazon, Adobe, IBM and others do not own the next wave of AI driven software/cyber security and this was a well-designed strategic poker move that caught the Street off guard to get a great unique software asset at a fair multiple.”
Despite the 30% premium to the market price, Ives noted that the $157 being paid by Cisco equates to around 6-times 2025 revenue projections which the analyst reckons is a ‘fair multiple’ for what he believes is a strategic asset.
Ives doesn’t expect to see any rival bidders or regulatory complications, though he is expecting it will make an impact on sentiments in Silicon Valley.
“Cisco is focused on the next generation of AI-enabled security and observability and Splunk's well regarded unique platform makes this the right move at the right time for Cisco in our view and an aggressive strategic play in cyber security.
“For Cisco this is a shot across the bow at Palo Alto, Checkpoint, Crowdstrike, Microsoft, Zscaler and others that the tech stalwart is not sitting idle in this market and now is making an aggressive play to gain market share in the coming years.”
What Splunk does
Splunk, for the uninitiated, is a server-side data software company that enables advanced monitoring of digital activity at scale, such that it can be used to detect suspicious and potentially fraudulent agents and behaviours that it says might otherwise go ‘undetected’.
In its own words, the company says its enterprises cyber security platform ‘provides simplified threat management that facilitates quick threat detection and response and minimizes risk.’
And, in the words of Cisco chief executive Chuck Robbins, the addition of Splunk “will drive the next generation of AI-enabled security and observability."
The deal is expected to boost Cisco’s recurring revenue base, whilst better positioning the new company for AI-related growth factors, Cisco noted.
Cisco told investors the deal would be cash flow positive and gross margin accretive in its first fiscal year, accelerating revenue growth and expanding margin.
Meet the AI security challenges ‘head-on’
"Together, we will form a global security and observability leader that harnesses the power of data and AI to deliver excellent customer outcomes and transform the industry,” Splunk chief executive Gary Steele said.
“We're thrilled to join forces with a long-time and trusted partner that shares our passion for innovation and world-class customer experience, and we expect our community of Splunk employees will benefit from even greater opportunities as we bring together two respected and purpose-driven organizations."
In today’s joint statement, the companies highlighted: “In today's hyperconnected world, data is everywhere, with every organization relying on it to run their business and make mission-critical decisions every day.
“Factoring in the acceleration and adoption of generative AI, expanding threat surfaces, and multiple cloud environments, it creates a level of complexity that is unlike anything organizations have faced.”
The combined company will “address these challenges head on”, the statement added.