🌐 Cisco Acquires Splunk >

What to make of the blockbuster acquisition?

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Cisco (CSCO) announced its plan to acquire Splunk (SPLK) for $28 billion in an all-cash deal the company plans to finance using a combination of cash and debt.

• For context, that’s roughly 13% of Cisco’s $216 billion market cap.

• Cisco generated $19 billion in free cash flow in the past 12 months.

It’s the biggest tech transaction in an otherwise quiet year and Cisco’s largest acquisition by far. In fact, it’s one of the most significant tech acquisitions ever.

By acquiring Splunk, Cisco bolsters its position in the cybersecurity and observability areas. Notable players such as New Relic ($6.5 billion) and Sumo Logic ($1.7 billion) went private earlier this year.

For more context on the state of the security market, check out our previous article here. 👇

Let's review the implications of this acquisition, explore Cisco's ambitions, and ponder who might be the next M&A target in the software category.

Today at a glance:

1. Largest tech acquisitions

2. Cisco’s game plan

3. Splunk’s business and valuation

4. M&A deals: Who’s next?

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1. Largest tech acquisitions

So, how big of a deal is this Splunk acquisition?

It will be a top 10 tech acquisition of all time if it passes regulators' scrutiny.

The size of the deal relative to the acquiring company is reminiscent of Salesforce (CRM) buying Slack for $28 billion in 2020.

Chart by App Economy Insights (Activision, VMWare, Splunk, and Figma still pending regulatory approval).

While Cisco plans to buy Splunk at $157/share, SPLK still trades at $145, illustrating that the market isn’t sure this deal will go through.

The deal is expected to close in the second half of 2024. If the merger is not completed by March 2025, Cisco will have to pay a $1.5 billion termination fee. Meanwhile, Splunk will have to pay a $1 billion breakup fee if the company takes another deal.

Now, let’s look closer at the implications for Cisco, Splunk, and the security and observability categories.