Cisco seeking software 

Contact:  Scott Denne

While both Cisco Systems and Hewlett Packard Enterprise face declining hardware businesses, the two companies have responded with opposing M&A strategies. With yesterday’s announcement that it will pay $1.7bn to acquire BroadSoft, Cisco sets up 2017 for a once-a-decade amount of M&A spending. But it’s not just a burst of activity that sets it apart from its rival. The networking giant has steadily sought software vendors as it looks to get its top line back to growth.

With its latest announcement, Cisco has now spent $6.5bn on acquisitions since the start of the year. According to 451 Research’s M&A KnowledgeBase, that’s more than it spent in the first 10 months of the year in any of the previous 15 years, except 2009. It’s reached for software assets in all eight of its deals this year, starting with the $3.7bn pickup of application performance monitor AppDynamics in January.

Over the past 12 months, Cisco’s top line dropped by 3% led by lower switch sales, while HPE’s sales through the first three quarters are down 7% year over year due to a slump in servers. HPE has responded by bolting on more hardware – its two largest transactions this year were for storage providers SimpliVity and Nimble Storage – shying away from software following the disastrous $11.7bn Autonomy buy in 2011, one of several deals it unwound last year across two multibillion-dollar divestitures.

While Cisco has made some large software purchases, it has spread those bets across multiple acquisitions and business units. So it’s not burdened with the legacy of a single software transaction that drags down the company’s results. Although it has often taken chances in its software deals – it paid 17x trailing revenue to enter a new market when it bought AppDynamics – its latest purchase, BroadSoft, brings it into familiar territory by obtaining an asset that sells primarily to internet service providers, a market Cisco has long sold to.

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Posted in M&A