Shares of Cisco (CSCO) were trading up more than 1% in recent trading, following news this morning that it plans to buy privately held Cariden for $141 million in cash and retention based incentives.
The deal is expected to close during Cisco�s fiscal second quarter, with Cariden joining Cisco’s Service Provider Networking Group.
Analysts seem positive on the news. Wells Fargo�s Jess Lubert maintained an Outperform rating on Cisco, writing that Cariden�s portfolio should complement Cisco�s existing business well and applauded �Cariden’s solid early operating metrics which include 50% CAGR over the past five years, 95%+ renewal rates, and wins with multiple tier1 providers. Separately, we believe Cisco should also benefit from Cariden’s MPLS expertise, which is a dominant WAN technology that may help Cisco better compete as the routing and optical layers converge.�
Lubert also notes that this is Cisco�s ninth purchase of a software- or cloud-centric company this year, �which may benefit Cisco’s gross margins over time and offset pressures from the ramp of lower margin offerings (UCS) and pricing within some segments of the portfolio (low end switching). We note Cisco entered the January quarter with roughly $7.5 billion in U.S. cash, which along with strong cash generation appears more than sufficient to support the recent M&A activity as well as the dividend and share repurchase plans.�
ISI�s Brian Marshall, was also positive on the move: �Our research has consistently highlighted the increasing importance of management/optimization software for networks and we believe the acquisition reflects CSCO’s desire to add more software-oriented capabilities. We also believe Cariden’s orchestration software can complement CSCO’s efforts in software-defined networking (SDN).�
Still, he maintained his Neutral rating, as he is concerned about Cisco�s long-term trajectory and a lack of near-term catalysts.
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