Cisco spunks $28 billion on Splunk - CEO Chuck Robbins explains why

In its biggest acquisition to date, Cisco plans to take over Splunk in a deal worth $28 billion, beefing up its cybersecurity and observability offerings - and, of course, there’s an AI spin in the mix as well. 

Cisco CEO Chuck Robbins said the deal on completion would result in one of the world’s biggest software companies: 

The combination of Cisco and Splunk further enhances and accelerates our strategy to securely connect everything to make anything possible. The IT landscape is changing faster than we've ever seen, with hyper-connectivity, AI and increasing cyber threats. The value of data only increases and that's why this deal makes sense. 

He went on: 

Cisco has an incredibly strong portfolio to help our customers re-architect their applications, secure their enterprises, navigate and power hybrid work, and of course modernize their infrastructure to manage the demands of IT today.  Splunk's leading platform in security and observability is going to strengthen and accelerate our ability to bring more innovation to our customers. Our combined capabilities will create an end-to-end data platform to enhance digital resiliency. 

Splunk’s observability capabilities will complement Cisco’s platform, he added: 

In terms of observability, our complementary capabilities will offer observability for the full IT stack, from the application to the network, across hybrid and multi-cloud environments. With this enhanced capability, correlated with business context, customers will be able to deliver more reliable and effective application experiences. Together Cisco and Splunk will deliver an end-to-end enterprise grade full stack observability platform.

As for that inevitable AI angle, Robbins pointed to the opportunity for Cisco in building out AI networks with hyperscalers, noting that the firm has taken around half a billion dollars worth of orders to date: 

There's also a huge opportunity with enterprises to help them responsibly unlock the opportunities that come with AI. Together with our visibility into the data, the substantial scale we bring and a deep foundation of trust, we are very well positioned to lead in this space.

All told, this is the next logical step for Splunk, according to CEO Gary Steele, who only joined the firm last summer: 

Splunk's success has always been grounded in our fundamental customer promise - the ability to stay ahead of an enterprise's needs in order to deliver products and solutions that keep their mission critical system secure and resilient. That will not change as we joined Cisco. In fact, this combination is about building on our customer promise, harnessing the power of data and AI as we integrate our complementary capabilities to transform the modern day tech economy.

My take

Cisco’s stock fell four percent on the announcement of the deal.

Commenting on that eye-watering price tag, Robbins said the deal fits with Cisco’s overall attitude to M&A:

I've always said that we don't have a size limitation on how we think about M&A. We want technology and strategic fit. We want the valuation to be right. We want cultural fit to be right. And all of those things are true. We haven't done a big deal [recently] because we had never gained conviction on a big deal. I can tell you that the work that Gary has done at Splunk in the last 18 months is exceptional. The progress they've made, the financial aspects of this deal, as well as the strategic fit and the cultural fit, provided our entire team conviction that this was a great thing for us to do.

It’s a big gambit on the part of Cisco. Assuming this gets through the necessary regulatory approvals, this will be a merger to watch closely in 2024 and beyond.