Cisco (CSCO) plans to acquire software maker Splunk (SPLK) as it looks to strengthen its prospects around software for information technology and security operations. Citing people familiar with the matter, the Wall Street Journal (WSJ) reports that Cisco made a takeover offer worth more than $20 billion.
Cisco is a U.S. company that offers technologies and solutions around networking, security, applications, and the cloud. It also sells Internet Protocol (IP)-based networking and other products.
Splunk Acquisition
The $20 billion bid would be Cisco’s biggest acquisition, eclipsing the $7 billion it paid for Scientific Atlanta in 2005. Last year, it paid $5 billion to acquire Acacia Communications.
The proposed acquisition would build on a strategic data security partnership between Cisco and Splunk. It would also affirm Cisco’s increased focus on software, having reiterated plans to introduce new financial metrics as it looks to grow its software business.
The shift towards software is also part of its push to strengthen its recurring revenue base. While software sales accounted for 30% of Cisco’s total revenue last year, plans are underway to ensure subscriptions generate 50% of annual revenue by 2025.
Cisco is not the only company planning acquisitions to enhance its growth metrics. Microsoft (MSFT) has already inked a deal to acquire videogame maker Activation Blizzard (ATVI) for about $75 billion. Oracle (ORCL) has also agreed to acquire Cerner (CERN) for more than $28 billion.
Analysts’ Take
J.P.Morgan analyst Samik Chatterjee recently reiterated a Buy rating on Cisco but reduced the price target to $69 from $70. Chatterjee’s reduced price target suggests 28.01% upside potential.
Consensus among analysts is a Moderate Buy based on 9 Buys and 8 Holds. The average Cisco price target of $65.69 implies 21.87% upside potential to current levels.
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