AI Acquisition: Cisco's $28B Purchase of Splunk AI Security Firm

0:00In a remarkable stride towards advancing AI driven security and observability, Cisco, the Silicon Valley networking giant, has announced its acquisition of the very famous cybersecurity cybersecurity. Splunk Incorporated. This is a$28 billion deal and Splunk shareholders are super thrilled over the moon with this right now. I think Cisco has committed to paying$157 per Splunk share, which is really good if you are a Splunk investor, you'll be doing great on this deal. So Cisco's chair and CEO is Chuck Robbins and he kind of emphasized the potential of this synergy in a statement saying, quote, our combined capabilities will drive the next generation of AI enabled security and observability from threat detection and response to threat prediction and prevention.

0:50We aim to fortify organizations of all size, ensuring they remain both secure and resilient. This is really interesting because they're doing a couple of things here. Of course, there's threat detection. This is a big thing for cybersecurity right now. And using AI for threat detection is valuable. But more importantly, I think what people see a lot of value in AI is what they said here, which is threat prediction and prevention. Recently on the podcast, we had someone from Square and they were talking about the way that Square uses AI to predict if someone is going to churn, if they're about to lose a customer and they take some preemptive measures to try to retain those customers.

1:29It's really interesting, right? Using AI to predict churn. And I think we're seeing the same kind of thing in a different field, in a different area here, but we're using AI to predict threats, to predict where you might see vulnerabilities and weaknesses in your cybersecurity, and then being able to help mitigate those. So I think AI's predictive ability, you know, you give all the data about your company, and then it can predict where you're vulnerable, is a really, really powerful use case. So Dan Ives of Wedbush views this as a strategic step for Cisco. In a note to clients, he said, Cisco's sharp focus on the next-gen AI-enabled security coupled with Splunk's distinct platform marks this as an astute move.

2:10This sends a clear message to competitors like Palo Alto, Checkpoint, CrowdStrike, Microsoft, and Zscaler that Cisco remains a formidable force in the market striving to further its market share in the imminent years. I think while both companies boards have given their approval to this acquisition, Splunk shareholder approval is still pending. So if everything goes according to plan, the deal is projected to finish by the end of Q3 next year. As you know, with these kind of really big mergers or acquisitions, these deals tend to take a long time for this all to actually finalize. And so, you know, we're looking for, you know, the end of next year or kind of Q3.

2:50So around this time next year, we should be seeing this deal close. A big deal, of course,$28 billion. And so that's going to take a full year to get this whole thing wrapped up. Interestingly, the market reacted very quickly. Cisco Systems shares actually dropped about 4 % after this announcement. And we saw, of course, Splunk had, you know, over 20 % increase in their shares, which is kind of interesting to see, you know, you kind of see this from a couple different angles, but perhaps people, perhaps Cisco is dipping just because they know that they're going to have to pay that 28 billion. Perhaps it is dipping because people see us as a sign of weakness, right?

3:27Cisco couldn't do this internally so that to acquire someone. And of course, Splunk is getting a premium on the share price. So it's going to go up. Now, the one thing I'll say is I do believe that this is probably a good move from Cisco. It's going to help bolster their company. Historically, Cisco has grown through kind of strategic acquisitions. And it's, of course, been steering clear of some of these huge deals like it's looking at now. But this acquisition of Splunk valued at 28 billion, I think kind of shows a pretty big shift in their strategy that they've used to date. So Splunk's acclaimed observability platform promises to complement Cisco's security vertical, helping clients in deciphering security threats and analyzing vast log data for troubleshooting across diverse enterprise systems.

4:13So Splunk's recent valuation was slightly above$20 billion, right? And so I think considering its share price range over the last year, the acquisition premium appears very, very generous. This has led to speculations that there might have been other potential companies looking to buy Splunk, right? If their valuation is$20 billion and Cisco is willing to pay$28 billion, like that's, you know, almost a 30 % premium on the share price. So definitely a generous offer. And I'm curious if there was, you know, other suitors looking to acquire Splunk. Gary Steele, who's Splunk's president and CEO, expressed a lot of optimism in this partnership saying, quote, merging with Cisco propels Splunk's growth journey, amplifying our commitment to bolstering global organizations while delivering exceptional value to our shareholders.

5:03Industry expert Ray Wang and founder and principal analyst at Constellation Research also kind of weighted on this saying the amalgamation of Cisco's network telemetry with Splunk's observability platform offers clients a panoramic view of data enhancing network security. So I think in the M &A landscape, it. This acquisition is definitely the most substantial enterprise software deal this year. This is kind of overshadowing Silver Lake Partners,$12 billion move with Qualtrics. And I think with all major deals, regulatory approval is going to be a hurdle here, especially given the kind of heightened global scrutiny around these huge transactions.

5:46However, both parties remain very hopeful for a smooth closure by the timeline, which they've kind of designated, which is next year. So very interesting to see from my end, how this plays out, how this affects Splunk's foray into AI. If, you know, before the acquisition, they're going to start, you know, pumping out a bunch of AI, new AI features to help in this whole cybersecurity area. Or if they're going to say, look, we already have a purchase price on us, and they're just going to kind of coast with the current features they have. I hope it's the former, but we will have to see. Definitely a very interesting acquisition, probably one of the biggest we've seen this year.

6:20And so definitely something we'll be following very closely as you know these kind of high profile acquisitions that are so closely tied to ai play a big role in the market and in you know the valuations and prices of ai companies i think this really shows that the demand for ai right now is not slowing down if anything it's accelerating and you know people are willing to pay some really massive sums to close these kind of deals