Cisco Acquires Splunk to Boost Cybersecurity and Observability Capabilities

Cisco's acquisition of Splunk is a significant move in the tech industry, aiming to enhance cybersecurity and observability capabilities.

Cisco is acquiring Splunk, a leading provider of cloud-based platform for data-to-everything, to strengthen its position in the market.

This acquisition will enable Cisco to offer a more comprehensive suite of products and services to its customers, addressing their growing needs in cybersecurity and observability.

The acquisition is expected to close in the first half of 2024, pending regulatory approvals.

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The acquisition of Splunk by Cisco is expected to have a significant impact on the market. This deal will create a strong competitor in the observability market, with Cisco providing an end-to-end observability solution and integrated security features.

The acquisition will also drive consolidation and M&A activity among other cybersecurity vendors, as companies seek to establish their end-to-end security suites. Smaller cybersecurity companies that bring innovative solutions integrating AI are most likely to become acquisition targets.

On a similar theme: Splunk Acquisition Price

The combined entity will offer an end-to-end innovative security solution, making it a compelling choice for big enterprises. This could lead to a possible switch to the Cisco-Splunk comprehensive security package, potentially impacting vendor relationships and long-standing security deployments.

The deal will also create opportunities for XDR vendors such as CrowdStrike and Palo Alto Networks, which have SIEM replacement strategies. Smaller SIEM vendors can also form relationships with customers who do not want to partner with Cisco due to higher costs and vendor lock-in.

Key Market Players Affected by the Acquisition:

The acquisition of Splunk by Cisco is expected to have a significant impact on the observability market.

The combined entity will provide an end-to-end observability solution and integrated security, enabling advanced threat detection and response features within the same tool.

This convergence of observability and security markets may encourage other vendors to integrate both features into their platforms to remain competitive.

Vendors in the observability market, such as Dynatrace, Datadog, and New Relic, will likely feel pressure to develop and adopt more advanced tools that can work on-premises and in multiple cloud environments.

The acquisition may lead to short-term disruption as both entities adjust to the new joint entity and determine its implications.

Companies like Dynatrace and Elastic offer single unified solutions for observability, security, and business data, positioning them as direct competitors to Cisco-Splunk.

Dynatrace is well-positioned to deliver enterprise-class observability solutions that Splunk-Cisco customers need, and may benefit the most from any uncertainty in this deal.

The Cisco-Splunk acquisition is set to accelerate the shift towards more AI and machine learning integration in the cybersecurity space. This is because the acquisition adds Splunk's security information and event management (SIEM) to Cisco's extended detection and response (XDR) capabilities.

The acquisition could drive consolidation and M&A activity among other cybersecurity vendors. This is because many strategic collaborations are likely to occur in various areas of cybersecurity, cloud security, and network monitoring.

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Smaller cybersecurity companies that bring innovative solutions integrating AI are most likely to become acquisition targets. This is because the more prominent players will look to expand their capabilities and compete with the new Cisco-Splunk venture.

Big enterprises may find the Cisco-Splunk comprehensive security package compelling and evaluate their current security strategies. This could lead to a possible switch to the Cisco-Splunk security package, potentially impacting vendor relationships and long-standing security deployments.

The acquisition creates opportunities for XDR vendors such as CrowdStrike and Palo Alto Networks. These vendors can attract customers away from traditional SIEM deployments by riding the waves of change in the market caused by the Cisco-Splunk deal.

Smaller SIEM vendors can form relationships with customers who do not want to partner with Cisco because of the higher costs and vendor lock-in.

Cisco's acquisition of Splunk is a strategic move to accelerate its transition to a software and subscription-based services model. This shift marks a departure from its traditional hardware-centric business.

By pivoting to software and subscription services, Cisco aims to reduce its dependence on one-time hardware sales and tap into the recurring revenue and scalability offered by this model. Cisco's CEO, Chuck Robbins, has stated that this move will help the company grow and expand its margins.

The acquisition of Splunk will enable Cisco to strengthen its position in the data management technology space, which demands scalable, flexible, and advanced cloud-based solutions. This is a significant move for Cisco, as it looks to expand its offerings and stay competitive in the market.

Cisco's acquisition of Splunk is expected to be cash flow positive and non-GAAP gross margin accretive in fiscal year 2025, and non-GAAP EPS accretive in fiscal year 2026. This suggests that the acquisition will have a positive impact on Cisco's financials.

Cisco's strategy is to combine its existing tools with Splunk's advanced analytics to create a robust integrated observability platform. This will provide customers with better visibility and performance, and potentially consolidate Cisco's market presence against competitors.

The acquisition will also allow Cisco to tap into Splunk's extensive partner ecosystem, which can create new profitable revenue streams through high-value services and innovative new applications and AI-powered solutions.

For your interest: Splunk Revenue

Cisco's acquisition of Splunk has raised some concerns about customer retention. 22% of customers say they are "Likely" or "Very Likely" to switch to Splunk's competitors if the deal goes through.

Pricing is another area of concern, with customers historically finding Splunk's services overpriced. Analysts have expressed concerns that Cisco overpaid for Splunk, with the agreed-upon $157 share price significantly higher than Splunk's 52-week low of $65.

However, most large customers are fully prepared to pay more for Splunk if prices increase and have no plans to cease using its services.

One of the main risks associated with the Cisco-Splunk acquisition is customer retention. 22% of customers say they are "Likely" or "Very Likely" to switch to Splunk's competitors if the deal goes through.

Cisco's CFO Scott Herren has confirmed that the company's product line has little overlap with Splunk's, which should mitigate the risk of customer loss.

Pricing issues have been a concern for Splunk since it transitioned to costly cloud systems in 2021, with customers finding its services overpriced but not switching due to high switching costs.

Analysts have expressed concerns that Cisco overpaid for Splunk, with the agreed-upon $157 share price being significantly higher than Splunk's 52-week low of $65 at the announcement date.

However, the $157 figure aligns with TTM revenue multiples of precedent transactions, and is not cause for concern.

Cisco has little exposure to the risk of the transaction not closing, as Splunk does not have extensive business operations in China and strict regulators are unlikely to have a significant effect on the transaction.

The acquisition is pending regulatory assessment in the United States and Europe, and Herren believes the evaluation procedure will be relatively straightforward.

The transaction won't be reviewed in China due to Splunk's limited exposure in the country.

Having access to Cisco's global sales network could allow Splunk to expand into new areas and markets, given that the United States accounts for around two thirds of the company's revenue.

Cisco doesn't anticipate the transaction to result in any large layoffs at Splunk.