Five weeks after Cisco Systems Inc. (CSCO) disclosed John Chambers would step down as chairman in December and hand the position over to CEO Chuck Robbins, Robbins has uncorked another big move in his multi-year push to grow Cisco's software and services exposure. With Chambers (who reportedly had differences with Robbins related to his strategic overhaul) set to exit, more large deals could -- and probably are -- in store.
Robbins' latest move: A $1.9 billion ($55 per share) all-cash deal to buy unified communications (UC) software/services provider BroadSoft Inc. (BSFT) . The deal is Cisco's second-largest software purchase, trailing only its $3.7 billion January deal to buy top app performance monitoring (APM) software firm AppDynamics, and carries a modest 2% premium to BroadSoft's Oct. 20 close.
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By enterprise software standards, Cisco is paying pretty reasonable multiples: The purchase price is equal to 21 times BroadSoft's 2018 EPS consensus of $2.61 and five times its 2018 revenue consensus of $382 million. But it is eyebrow-raising in a couple of respects:
Cisco Is Buying a Rival
Cisco is buying a rival. Like BroadSoft, Cisco provides a variety of UC software products that are deployed by third-party service providers, who in turn use them to provided hosted communications services to businesses. Indeed, it was only in February that BroadSoft, which counts AT&T Inc. (T) , Verizon Communications Inc. (VZ) , Deutsche Telekom and many other top-tier carriers as clients, referred to Cisco as its "next closest competitor" in the market for cloud-hosted UC lines.
Cisco tries to downplay this overlap by arguing its solutions are more likely to be used by enterprises, and BroadSoft's by small and mid-sized businesses. In addition, unlike BroadSoft, Cisco sells its UC offerings to enterprises for on-premise deployment; it competes in this market with the likes of Microsoft Corp. (MSFT) and Avaya. And BroadSoft, unlike Cisco, gives service providers the option of using the company's own cloud platform to deliver UC services based on its software.
Cisco Could Pinch its Channel Partners
Cisco is stepping on the toes of its channel partners, some of whom are less than thrilled about the deal. With BroadSoft's solutions heavily used by telcos, partners who have been delivering UC services to businesses with the help of Cisco products are worried that the creation of solutions for service providers that pair Cisco's offerings with BroadSoft's will make life harder for them. Even if they're also able to use BroadSoft's products.
If Cisco is worried about such channel conflict, it's not showing any signs of it. Instead, the company touts how pairing Cisco's "leading meetings [software], hardware and services portfolio" with BroadSoft's product line will let it "offer best-of-breed solutions for businesses of all sizes and deliver a full suite of collaboration capabilities."
If Cisco is willing to tolerate some product overlap and/or ruffle the feathers of channel partners when making a 10-figure acquisition, it opens up a lot of possibilities for future deals. Particularly when one also considers how, since Robbins became CEO in mid-2015, Cisco has made big acquisitions in fields ranging from APM software and cloud-hosted IoT services to collaboration software and security tools that integrate with its hardware.
Here are some of the other software names that could be in Cisco's sights if the company is willing to think big and isn't troubled by some potential overlap or channel conflict:
