Cisco Systems Inc., the biggest maker of networking equipment, agreed to acquire Sourcefire Inc. for about $2.7 billion, adding cybersecurity technology.
Cisco will pay $76 a share in cash, the San Jose, California-based company said today in a statement, a 29 percent premium over Sourcefire’s closing price yesterday. Cisco said the deal value includes outstanding equity awards and retention- based incentives.
Cisco chief executive John Chambers (pictured) is using deals to add products that can help win more business from wireless companies as soaring use of mobile devices boosts demand for tools to manage voice and data traffic. Sourcefire’s products, which protect networks from hacker attacks, will help Cisco challenge smaller Internet-security rivals such as Palo Alto Networks Inc. and Fortinet Inc.
“This is certainly going to boost the revenue, but more so than anything else it is going to give Cisco engineers technical acumen and establish credibility with Cisco in this space,” Jason Ader, an analyst at William Blair & Co., said in an interview.
Cisco’s shares fell less than 1 percent to $25.67 at 9:41 a.m. in New York, and they had advanced 31 percent this year through yesterday. Sourcefire surged 28 percent to $75.85.
Sourcefire, based in Columbia, Maryland, builds security platforms for corporate and government customers including firewalls, intrusion detectors and advanced malware protection.
Excluding the retention-based incentives, Cisco’s offer values Sourcefire at about $2.2 billion, including net cash and options, according to data compiled by Bloomberg. That’s about 141 times earnings before interest, taxes, depreciation and amortization, the data show. The median paid in a survey of more than 20 Internet-security deals is about 15 times Ebitda, the data show. The largest such transaction was Intel Corp.’s takeover of McAfee Inc. for $7.7 billion, completed in 2011.
While the push to gain more advanced security technology makes sense for Cisco, “the price paid was steep and leaves Cisco open to questioning over acquisition discipline,” Brian Marshall, an analyst at ISI Group, wrote in a research report today.
The boards of both companies have approved the transaction, which is expected to close during the second half of 2013. Cisco said the purchase will be slightly dilutive to adjusted earnings in fiscal 2014 due to purchase accounting adjustments and integration costs.
“With the acquisition of Sourcefire, we believe our customers will benefit from one of the industry’s most comprehensive, integrated security solutions -- one that is simpler to deploy, and offers better security intelligence,” Christopher Young, senior vice president of Cisco’s security group, said in the statement.
Cisco in May agreed to acquire JouleX for $107 million, adding software that helps companies manage power usage as mobile devices spur a surge in data traffic. In April, Cisco agreed to purchase U.K. networking company Ubiquisys for about $310 million, gaining technology that helps wireless carriers provide better service to smartphone and tablet users.