Cisco: The King of Software M&A

From Splunk to AppDynamics, how Cisco's 14 $B+ software acquisitions reinvented the networking giant into a leading infrastructure software and cybersecurity platform

At its peak during the dotcom era, Cisco was dominating the networking industry, driven by its key product: the router, which was essential for directing data traffic across the internet. Cisco's innovations in networking hardware made it the backbone of the rapidly expanding internet, and investors were optimistic about its future as the internet grew. The company’s strong position in a market expected to see explosive growth from increased internet traffic fueled high expectations and propelled its market value to $555 billion.

List of Cisco’s $B+ acquisitions, Data Gravity

As the dotcom bubble burst, Cisco recognized the need to shift its focus toward software and began acquiring software companies to diversify its offerings and stay competitive. Over the years, Cisco has made 14 billion-dollar acquisitions (totaling over $70B). In addition to the billion dollar deals, Cisco has made 216 total acquisitions per its Cisco M&A page, with the bulk of the value in networking, infrastructure software and cybersecurity. This strategic shift has paid off significantly, with Cisco's software revenue now approaching $20 billion, positioning CSCO 0.00%↑ just shy of Salesforce and ahead of ServiceNow in scale. Today, Cisco's market cap stands at approximately $230B, with most of its value now attributable to the software businesses it has acquired and successfully integrated into its ecosystem.

In this piece, we'll explore Cisco's most significant acquisitions: detailing the scale, strategic rationale, and impact of each on the company's evolution into a software and cybersecurity powerhouse.

ChatGPT, depicting Cisco as a powerful M&A machine, symbolically acquiring and integrating other companies. It visually represents Cisco's strategic dominance in the M&A space.

In summary, Cisco’s acquisitions closer to its core product portfolio in networking were successful, such as other networking products (Meraki, Starlent), cybersecurity (Sourcefire, Duo), APM/observability (Splunk, AppDynamics), IoT (Jasper). It saw mixed success in enterprise communication collaboration (WebEx, Broadsoft). Its failures were in the consumer market (Scientific Atlanta, NDS Group).

1. Splunk (2023) — $28B

Cisco’s acquisition of Splunk for $28 billion [announcement] is the largest in its history and the second-largest software acquisition ever, following Broadcom’s $69 billion purchase of VMware. This deal complements Cisco’s 2017 acquisition of AppDynamics, a leader in application performance management (APM) and tracing. While AppDynamics excels in monitoring and managing APM, Splunk dominates in SIEM and security event/log analysis for observability. Together, these acquisitions create a powerful suite, providing comprehensive visibility across applications, infrastructure, and security environments.

In Splunk’s final quarter as a public company (Q1 2024), it reached $4.2 billion in ARR, growing at 15%, with 29% operating margins. The company was in the midst of a transition from license and maintenance to full subscription SaaS, which may have allowed Cisco to acquire the business for under 7X ARR. With Splunk, Cisco now owns the leading security-first observability vendor, and combined with AppDynamics, it becomes a strong competitor to Datadog and Dynatrace in the broader observability market.

The Splunk acquisition was a super bold move, representing over 12% of Cisco’s market cap at acquisition. With Splunk, Cisco effectively doubled its Security business from $3.5B to over $8B of revenue expected in 2024. Cisco financed the Splunk acquisition with a combination of $10 billion in cash and $18 billion in new debt.

2. Cerent (1999) - $7.4 Billion

In 1999, Cisco acquired Cerent Corporation for $7 billion, at the time one of the largest acquisitions during the dotcom boom. Cerent was a key player in optical networking, providing advanced equipment crucial for the internet's expansion. Its Optical Multi-Service Platform (OMSP) was instrumental in supporting high-speed data transmission for voice, video, and internet services — bringing new services to the internet. At the time of acquisition, Cerent reported revenues of approximately $100 million and was experiencing rapid growth due to the skyrocketing demand for broadband infrastructure. In early 1998 the company split into two companies with the Petaluma branch becoming Cerent and the Burnaby and Mountain View branches becoming Siara Systems (Acquired by Redback Networks, founded by Wing co-founder Gaurav Garg in 1999).

Cisco sought to enhance its optical networking capabilities and capitalize on the surge in internet traffic by acquiring Cerent. The timing aligned well with the internet build-out boom, positioning Cisco to better serve service providers. Cerent became the foundation of Cisco's Optical Transport Business Unit. The Cerent 454 was rebranded the Cisco 15454 and became the fastest product (at that time) to hit the $1B annual sales rate by selling $250 million in its second quarter as a Cisco business unit.

However, as the industry evolved, Cerent's technology faced increasing competition from more advanced solutions, such as those from Ciena and Juniper Networks, which offered superior scalability and performance. Despite Cerent's initial impact and importance in internet infrastructure, integrating its technology into Cisco's broader offerings proved challenging amid rapidly changing market demands.

3. Scientific Atlanta (2005) - $6.9 Billion

In 2005, Cisco acquired Scientific Atlanta for $6.9 billion, a key provider of set-top boxes and video distribution networks. The acquisition was likely driven by the idea that Cisco could sell these set-top boxes alongside its routers in the consumer market, creating a more integrated home networking solution.At the time, Cisco's market cap was around $123 billion, making this deal about 5.6% of its market value. Cisco financed the acquisition with $3 billion in cash and $3.9 billion in newly issued debt.

Scientific Atlanta’s product, set-top boxes

In the long term, the acquisition had mixed results. While it initially helped Cisco tap into the video services market, the rise of internet streaming and changes in consumer technology eventually reduced the relevance of set-top boxes, limiting the long-term impact of the deal.

4. NDS Group (2012) - $5 Billion

In 2012, Cisco acquired NDS Group for $5 billion to strengthen its position in the video delivery and content security market. NDS was an Israel-based provider of software for pay-TV services, including digital rights management (DRM) and interactive TV applications. The acquisition was aimed at enhancing Cisco’s Videoscape platform, which was designed to help service providers deliver next-generation video entertainment experiences across multiple devices, integrating traditional TV with internet-based services.

At the time, Cisco’s market cap was around $100 billion, making this acquisition about 5% of its market value. Cisco financed the deal through a mix of cash and debt.

The strategy behind the acquisition was to bolster Cisco’s capabilities in video delivery and content security, offering more comprehensive solutions to service providers facing competition from emerging streaming services. However, the rapid shift toward over-the-top (OTT) streaming platforms like Netflix and the decline of traditional pay-TV made this acquisition less successful. Unlike Cisco’s earlier acquisition of Scientific Atlanta, which involved hardware, NDS focused solely on software, limiting its long-term value as the industry moved away from traditional pay-TV models.

Six years later, Cisco sold NDS back to Permira in 2018 for just $1 billion, reflecting the reduced relevance of the business in a streaming-dominated landscape.

5. Acacia Communications (2021) - $4.5 Billion

Acacia specializes in high-speed optical interconnect technologies, which are crucial for data centers, telecommunications providers, and expanding AI workloads that require rapid data transfer across networks. The acquisition was intended to strengthen Cisco’s position in the optical networking space, enhancing its ability to support the growing demand for high-capacity, low-latency networks, especially as AI applications proliferate.

Acacia, The Story of Acacia Communications [link]

At the time of the acquisition, Cisco's market cap was approximately $220 billion, making the deal around 2% of its market value. Cisco financed the acquisition primarily with cash on hand.

Competitors in the optical networking space include companies like Astera Labs (Astera IPO announcement), Ciena, Infinera, and Huawei, all of which are also pushing advancements in high-speed networking to meet the demands of AI and cloud computing. The acquisition of Acacia allowed Cisco to integrate cutting-edge optical technologies into its portfolio, reinforcing its competitiveness in a market increasingly driven by AI and data-heavy applications. While recent, this acquisition will likely be successful, as it has positioned Cisco to better serve the evolving needs of AI-driven infrastructures.

6. AppDynamics (2017) - $3.7 Billion

In 2017, Cisco acquired AppDynamics for $3.7B, marking a significant move into the application performance management (APM) space. AppDynamics was a leading provider of APM solutions, which help businesses monitor and optimize the performance of their applications in real-time. The Company was nearing its IPO when Cisco acquired the company. The acquisition was a key move for Cisco, enabling the company to deepen its software expertise and gain critical tools for monitoring and optimizing performance in increasingly complex, distributed IT environments.

At the time of the acquisition, Cisco's market cap was around $150 billion, making the deal approximately 2.5% of its market value. Cisco financed the acquisition using cash on hand.

The acquisition of AppDynamics positioned Cisco as a strong player in the broader observability market, enabling it to compete with companies like Dynatrace and Datadog. Cisco later doubled down on observability in a massive way with Splunk, likely bolstered by its success with AppDynamics. AppDynamics' real-time APM tools complemented Cisco's existing networking and security products, providing a more comprehensive solution for enterprises looking to ensure the performance and security of their critical applications. This acquisition has been largely viewed as quite successful, as it has strengthened Cisco's software offerings and aligned well with the growing importance of APM in modern IT operations.

7. Tandberg (2010) - $3.3 Billion

In 2010, Cisco acquired Tandberg, a video conferencing company based in Oslo, Norway, for $3.3 billion. The acquisition enabled Cisco to combine Tandberg's hardware with its software offering, WebEx, creating a comprehensive video communication solution. Cisco strategically targeted its existing corporate customers, who were already buying its networking equipment, making it easier to integrate and sell this new offering. This move allowed Cisco to expand its product portfolio and provide a seamless, end-to-end communication system to its enterprise clients.

Cisco Tandberg products for office teleconferencing

The acquisition allowed Cisco to compete more effectively with companies like Polycom and Microsoft's Skype for Business, particularly as demand for video conferencing grew. The integration of Tandberg’s products into Cisco’s broader suite of communication tools was successful, enhancing Cisco’s ability to offer a complete, unified solution to its customers. Its WebEx division now does over $4b of total revenue and is a major success story.

8. WebEx Communications (2007) - $3.2 Billion

In 2007, Cisco acquired WebEx Communications for $3.2 billion, marking a significant entry into the collaboration and online meeting space. Cisco was early to the video conferencing space, with Microsoft acquiring Skype in 2011 for $8.5B. With WebEx now facilitating over 600 million monthly users and supporting 3 billion meeting minutes daily, this move firmly established Cisco as a dominant force in the enterprise communication market, providing businesses with a comprehensive solution that unifies voice, video, and online meetings.

At the time of the acquisition, Cisco’s market cap was approximately $160 billion, making this deal about 2% of its market value. Cisco financed the acquisition using cash.

Despite the departure of Eric Yuan, a key WebEx engineer who later founded Zoom, WebEx has remained a successful product under Cisco’s ownership. As of the latest available data, Cisco's WebEx generates approximately $4 billion annually in revenue, making it one of the key contributors to Cisco’s overall software and services portfolio. The platform has seen substantial growth, particularly during the pandemic-driven shift to remote work, solidifying its position as a major player in the collaboration software market. The WebEx acquisition is certainly a major success!

9. Starent Networks (2009) - $2.9 billion

In 2009, Cisco acquired Starent Networks, a Massachusetts-based company, for $2.9 billion. Starent was a leader in mobile packet core technology, crucial for managing data traffic on wireless networks. This acquisition allowed Cisco to strategically expand its offerings in the rapidly growing mobile internet market, just as the adoption of smartphones and connected devices was beginning to surge.

The integration of Starent’s technology into Cisco’s portfolio was a success, becoming a cornerstone of Cisco’s Mobile Internet Technology Group. This division played a critical role in supporting the global rollout of 3G and 4G LTE networks. While exact revenue figures aren't detailed, the acquisition helped Cisco capture a significant share of the mobile infrastructure market, positioning it as a strong competitor against Ericsson and Nokia. By 2011, Cisco's service provider business, bolstered by Starent’s technology, was generating over $10 billion annually, demonstrating the impact of this strategic acquisition.

10. Sourcefire (2013) - $2.7 billion

In 2013, Cisco acquired Sourcefire for $2.7 billion, marking its first billion-dollar cybersecurity acquisition and significantly bolstering its security capabilities. Sourcefire was a leader in intelligent cybersecurity solutions, best known for its open-source intrusion detection system, Snort, and its next-generation firewall (NGFW) technologies. The acquisition was a strategic move for Cisco to enhance its security portfolio at a time when cyber threats were becoming increasingly sophisticated.

Before Sourcefire, Cisco had made several key acquisitions in the cybersecurity space, including IronPort Systems in 2007 for $830 million, which focused on email and web security, and ScanSafe in 2009 for $183 million, a leader in SaaS web security solutions. These earlier acquisitions laid the foundation for Cisco's security strategy, but the Sourcefire deal represented a major leap forward. Check Point had attempted to acquire Sourcefire 8 years earlier in 2005 for $225M, though US authorities blocked the acquisiton.

Cisco's acquisition of Sourcefire allowed it to directly challenge network security vendors like Check Point and Palo Alto Networks. By incorporating Sourcefire's intrusion detection technology into its networking products, Cisco bolstered its security capabilities and became a stronger competitor in the cybersecurity market. This move helped Cisco offer more robust network security, positioning it as a key rival to these established firms.

11. Duo Security (2018) - $2.35 billion

In 2018, Cisco acquired Duo Security, a Michigan-based cybersecurity company, for $2.35 billion. Known for its multi-factor authentication (MFA) technology, Duo added a critical layer of identity verification to Cisco’s security portfolio. This acquisition marked Cisco’s entry into the cloud-based identity security market, aligning with its strategy to offer zero-trust security frameworks as more enterprises moved to the cloud. Duo was growing over 100% year-over-year before its acquisition and has maintained strong growth rates inside Cisco.

Duo’s integration into Cisco’s offerings has been a success, with its technology becoming a key part of Cisco’s secure access solutions. Cisco's security business, which includes Duo, reported revenue of approximately $3.5 billion in 2023 (prior to its Splunk acquisition), indicating the strong contribution from its acquired security technologies. The acquisition strengthened Cisco’s position in the cybersecurity market, enabling it to compete more effectively with firms like Okta and Ping Identity in identity and access management.

12. BroadSoft (2017) - $1.9 billion

In 2017, Cisco acquired BroadSoft for $1.9 billion to enhance its cloud-based unified communications (UC) portfolio. BroadSoft, known for its voice, video, messaging, and collaboration services delivered through telecom carriers, allowed Cisco to expand its reach into the service provider market and strengthen its cloud communication offerings alongside WebEx and Jabber.

The acquisition has been successful, integrating BroadSoft’s technology into Cisco’s collaboration suite and helping Cisco compete more effectively with Microsoft Teams and Zoom. By 2020, Cisco’s collaboration business, which included BroadSoft, had grown to serve over 300 million users globally and over $5.8B of revenue, solidifying Cisco’s position as a leading provider in the unified communications market.

13. Jasper Technologies (2016) - $1.4 billion

In 2016, Cisco acquired Jasper Technologies for $1.4 billion, marking a major step into the IoT space. My partner Gaurav Garg was one of the early investors and board member at Jasper for 11 years through its acquisition and wrote about his journey here. The acquisition allowed Cisco to offer end-to-end IoT solutions, integrating Jasper’s technology to automate device management, connectivity, and billing.

Jasper’s platform was novel in its approach for automating device management, connectivity, and billing, providing Cisco with a comprehensive solution to address the rapidly growing IoT market. At the time of the acquisition, Jasper supported over 3,500 companies, including major names like GM, Amazon, and GE, and managed over 200 million devices globally. The acquisition has been a success for Cisco, significantly enhancing its IoT capabilities and positioning it as a strong competitor in the IoT market against providers like AWS and Microsoft Azure.

14. Meraki (2012) - $1.2 billion

Cisco acquired Meraki in 2012 for $1.2 billion to enhance its cloud-managed networking solutions. Meraki specialized in providing cloud-based networking hardware and software, including wireless access points, switches, and security appliances. This acquisition allowed Cisco to integrate Meraki’s user-friendly platform, which simplified network management for over 20,000 customers, including major companies like Uber and Netflix.

The Meraki acquisition has been successful, with Meraki’s revenue growing from $80 million to over $1 billion annually, significantly strengthening Cisco’s position in the cloud-managed networking space.