Cisco Systems, Inc (CSCO) Continues Buying Spree With $2.6B Acacia Deal

Cisco Systems, Inc. (Nasdaq: CSCO) shares traded slightly higher on Tuesday after the company announced a $2.6 billion buyout of networking supplier Acacia Communications ( ACIA).

Cisco management is investing aggressively in network performance technology given increasing demands from data center operators and telecommunication companies, and analysts say Cisco is positioning itself well for the next several years of rapidly expanding data transmission over high-speed internet networks.

Cisco is paying $70 per share for Acacia, which traded higher by 35% on Tuesday morning following the announcement. Shares were trading about 7.8% below the proposed buyout price, suggesting investors may be somewhat concerned about regulatory roadblocks. Cisco said it expects the deal to close during the second half of the company’s fiscal 2020.

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Cisco is one of Acacia’s largest clients for its optical interconnect technologies, including modules and semiconductors. Cisco represented about 14% of Acacia’s total revenue in 2018.

The Acacia deal is the latest in a Cisco buying spree dating back to last year as the company preps for a boom in network capacity. Cisco announced a $2.35 billion buyout of cloud-based cybersecurity company Duo Security in August 2018. In December, Cisco acquired semiconductor company Luxters for $660 million.

In a statement, Cisco management says Acacia’s technology will play an important role in facilitating a shift among customers from chassis-based systems to pluggable modules. Pluggable technology allows users to more efficiently increase data loads on their networks.

Cisco said advances in router and switch capacity make it critical for the company’s optics technology to keep pace.

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“With the explosion of bandwidth in the multi-cloud era, optical interconnect technologies are becoming increasingly strategic,” David Goeckeler, executive vice president and general manager of Cisco’s networking and security business, says. “The acquisition of Acacia will allow us to build on the strength of our switching, routing and optical networking portfolio to address our customers’ most demanding requirements.”

Wedbush analyst Daniel Ives says Acacia and Cisco are a perfect fit.

“This is (Cisco CEO Chuck) Robbins & Co. going on the offensive with an optical acquisition in Acacia that makes a ton of strategic sense on paper,” Ives says. “Cisco is further building on its product footprint on the networking and cloud front, with M&A a linchpin toward this strategy over the next 12 to 18 months, especially with 5G around the corner.”

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