Cisco Systems Inc. plans to pay $1.73 billion to acquire BroadSoft Inc., a maker of cloud-based communications software, as the networking giant steers further away from its legacy hardware and into sales of software and services.
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The deal would help Cisco increase its recurring revenue from subscription-based services, which Chief Executive Chuck Robbins has said is core to its growth strategy.
Increasingly, software and services are driving value in corporate technology, while hardware, such as Cisco's routers and switches, face pricing pressures due to commoditization.
"BroadSoft has been a visionary in the idea that all collaboration technologies are going to move to the cloud," Rowan Trollope, senior vice president of Cisco's Applications Business Group, which includes subscription-based software and services.
Shares of BroadSoft, 1.4% higher Monday, were up about 31% this year while Cisco's stock, up 0.9% to $34.54, was about 13% higher year-to-date.
Cisco is paying $55 in cash for each of BroadSoft's 31.5 million shares outstanding. The deal is expected to close in the first quarter of 2018.
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BroadSoft, based in Gaithersburg, Md., makes a so-called unified communications software product that combines video, voice, messaging, screen sharing, file sharing and conferencing in an application accessed online. It also makes software for call centers and team collaboration that workers can access online.
BroadSoft has been growing at about 20% a year over the past few years, but its subscription business has been growing at about twice that rate, BroadSoft CEO Michael Tessler said in an interview. Almost half of BroadSoft's revenue comes from recurring software and subscriptions.
Although Cisco's overall revenue declined 4% in the most recent quarter from the year-earlier period, the company increased by 50% the portion of product-deferred revenue related to recurring software and subscriptions. These recurring offers constituted 31% of its total revenue.
Cisco also has begun to create cloud-based subscription services to help customers manage its own networking hardware. "Our objective is to continue moving to cloud-managed solutions across our entire enterprise networking portfolio," Mr. Robbins said on a call with securities analysts in June.
Over a five-year period, subscription-based services can add 20% more revenue than simply selling perpetual, or permanent, software, Mr. Robbins told analysts at the time.
BroadSoft is the seventh company Cisco has acquired this year, and the second largest after its $3.7 billion deal to buy AppDynamics.
Cisco plans to pay for the deal with cash held in the U.S.. While the company has more than $70 billion in cash on its balance sheet, most is held overseas. At the end of the most recent quarter, the company had about $3 billion in cash in the U.S.
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(END) Dow Jones Newswires
October 23, 2017 12:18 ET (16:18 GMT)