Contact: Brenon Daly
In one big roll of the dice, Cisco Systems has nearly matched the entire spending on all information security deals across the globe in each of the past two years. The networking giant announced Tuesday that it plans to hand over $2.7bn in cash for Sourcefire. That single transaction, which gives the network security vendor a platinum double-digit valuation, barely lags the aggregate value of 2012 ($3bn) and 2011 ($3.2bn) infosec deals.
So what is Cisco getting in its big bet on security? Sourcefire is a solid mid-20% grower and has consistently ranked well in terms of stickiness with customers. TheInfoPro, a service of 451 Research, surveyed Sourcefire customers in late 2011 and found that not a single one was planning to switch from Sourcefire to another provider. Sourcefire was the only infosec vendor among the 15 companies surveyed to receive unanimous support from its customers.
The growth and positive sentiment around Sourcefire goes some distance toward balancing the concerns that this mega-transaction brings, both specific and general. For starters, Cisco has struggled with many of its purchases outside its core market of enterprise networking gear (witness its divestiture of consumer brand Linksys earlier this year). Further, the company’s security business in the most-recent quarter shrank 4%, compared with a 5% increase in overall revenue at Cisco.
More broadly, many of the multibillion-dollar acquisitions of other infosec providers have only delivered so-so results for the buyers. In some cases, rumors have pointed to acquirers looking to unwind their purchases. For instance, we’ve heard in the past that IBM has considered shedding the Internet Security Systems business it bought in mid-2006 for $1.3bn. Additionally, EMC was rumored to be exploring alternatives for RSA Security, which it picked up in a competitive process for $2.1bn seven years ago.
And then there’s the cautionary tale provided by a directly comparable transaction in early 2004. In that deal, Cisco rival Juniper Networks decided that it wanted to make a play for the convergence of networking and security, announcing a $4bn stock swap for NetScreen Technologies. That deal dragged on Juniper’s results for years, and was one of the primary reasons why Juniper was out of the M&A market entirely for a half-decade (2005-2010). We would note that during that five-year period with its rival sidelined, Cisco was incredibly active, spending more than $20bn on 40 acquisitions.
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