Cisco’s $28 billion Splunk deal may ignite software deal frenzy

Cisco Systems’ $28 billion deal for Splunk is likely to prompt other technology giants to splash out on similar acquisitions of software vendors with predictable subscription revenue, investment bankers and analysts say.

Splunk, a cybersecurity and data analytics firm, was in the process of shifting its business model from licensing its software to charging for subscriptions when it announced an agreement last week to sell itself to Cisco, making it the third-largest software acquisition of all time.

Cisco CEO Chuck Robbins, who has been expanding his company’s services offerings to compensate for its moribund telecommunications equipment business, told analysts that the $4 billion in annual recurring revenue that Splunk would bring from its subscriptions was a key driver behind the deal.

This underscores how Splunk’s subscription revenue-focused peers, such as Elastic NV, Datadog, Crowdstrike Holdings and Dynatrace, are potential acquisition targets for technology conglomerates such as Microsoft, Adobe and Oracle, which are grappling with corporate customers seeking to cut spending, the bankers and analysts said.

The improving outlook for software mergers and acquisitions is a welcome boost for dealmakers, which have seen activity in the technology sector drop 61% year-to-date in the first 8 months of 2023 to $231.5 billion, according to LSEG data.

Dealmaking in the software sector has been dominated by private equity firms over the past year facing little competition from technology giants. New Relic, a Splunk competitor, agreed in July to be sold to private equity firms Francisco Partners and TPG Inc for $6.5 billion.