On September 21, 2023, Splunk Inc. (Splunk), a San Francisco-based US$2.67 billion public company founded in 2003, entered into an agreement and plan of merger with a US$157 a share cash offer approximating a US$28 billion deal from Cisco Systems, Inc. (Cisco). Splunk, which employs over 8,000, will survive the merger as a wholly-owned subsidiary of Cisco.
Cisco came in strong on its offer and insisted on an agreement where Splunk would not solicit or entertain any shopping offers. However, the Splunk board could cancel the Cisco agreement if another company made a bonafide superior offer. If Cisco exits the deal or an anti-trust injunction arises, it will cost the company US$1.478 billion. If Splunk wants out of the deal to pursue a superior offer, it will cost the company US$1 billion.
This analyst believes a competitive offer would need to exceed US$32 billion. IBM, Microsoft, and Google may have that kind of money and a large enough security business, but this analyst doesn’t see where it makes sense for these companies to offer to acquire Splunk. Cisco is one of the few companies where acquiring Splunk makes sense.
Cisco will need to do some house cleaning at Splunk to align with its financial model, where it has been profitable over the past ten years. Since its inception, Splunk has incurred net losses yearly, resulting in an accumulated deficit of US$4.05 billion. Splunk has bet its future on costly cloud services that require continual infrastructure investments. Splunk’s US$3.099 billion in debt exceeds its annual revenue. Splunk recently executed layoffs, including an announcement that it would reduce its global workforce by 4%, but that is a drop in the bucket of what will be required to right this company. Ultimately, Splunk was getting in over its head and needed an acquisition to have a future. Cisco is acquiring a company with over US$7 billion in deficit loss and debt.
Cisco sorely needs Splunk, and Splunk needs Cisco. Cisco has been missing the central data analytics engine to pull its firewall, extended detection and response, intrusion prevention system, and other network security defenses into a cohesive threat protection platform. Merging these companies will be messy; competitors will target them, and customers will impatiently wait for the new product roadmap. But, when it is all done, Cisco will be a force to be reckoned with, and Splunk’s technology will survive.