Cisco acquires BroadSoft for $1.9B, furthers software-centric diversification effort

merger and acquisition
However compelling Cisco’s software thesis as a long-term outlook may be, the vendor continues to see challenges.

Cisco has officially acquired BroadSoft—a provider of cloud PBX, unified communications, team collaboration and contact center software—for $1.9 billion. This move reflects Cisco's ongoing pivot to becoming a software company.

Under the terms of the agreement, Cisco will buy every share of BroadSoft at $55 each. The acquisition has been approved by the board of directors of Cisco and Broadsoft.

Jefferies acted as lead financial advisor to BroadSoft during the deal.

Following its $3.7 billion acquisition of privately held AppDynamics in March, the BroadSoft deal would be Cisco’s second major acquisition this year.

RELATED: Cisco continues software transition, but slow service provider spending, switching impacts Q4 results

Cisco said that by combining BroadSoft’s open interface and standards-based cloud voice and contact center solutions delivered via service provider partners with Cisco's meetings, hardware and services portfolio, the combined company will “offer best-of-breed solutions for businesses of all sizes and deliver a full suite of collaboration capabilities to power the future of work.”

The timing of the acquisition of BroadSoft comes at a time when more businesses are migrating away from TDM-based voice to IP-based cloud solutions.

“We chose BroadSoft as it provides a portfolio of cloud collaboration platforms and business applications, which strengthen our cloud investments and ability to deliver collaboration solutions to our global telecom provider customers,” said Rob Salvagno, VP of corporate business development for Cisco, in a blog post. “Following the close of the acquisition, Cisco and BroadSoft will provide a comprehensive SaaS portfolio of cloud based unified communications, collaboration, and contact center software solutions and services for customers of all sizes.”

After meeting customary closing conditions and regulatory reviews, Cisco expects the acquisition to close during the first quarter of 2018. Prior to closing, Cisco and BroadSoft will continue to operate as separate companies. Upon completion of the transaction, BroadSoft employees will join Cisco's Unified Communications Technology Group led by Vice President and General Manager Tom Puorro, under the Applications Group led by Trollope.

In addition to its cloud and software capabilities, BroadSoft brings a large Tier-1 service provider customer roster.

“Collaboration is the first step to business digitization and BroadSoft has partnerships with over 450 telecom carriers in 80 countries—including 25 of the top 30 globally—to 19+ million BroadSoft business subscribers,” Salvagno said. “BroadSoft’s portfolio is complementary to our existing on premises and enterprise-centric Hosted Collaboration Solutions, as well as Cisco’s overall cloud investment strategy.”

While BroadSoft traditionally sold its software products to service providers such as Verizon and AT&T, which would sell them to their business customers, the company was recently trying its hand in selling directly to business customers. But the shift in its sales approach put BroadSoft in conflict with its service provider partners, according to a Barclays Plc research report.

For Cisco, the revenues in its traditional switches and routers continue to decline. Cisco has been resetting its focus on service providers’ movement to virtualize their networks via SDN as well as emphasizing other areas such as security, the Internet of Things and cloud computing.

However compelling Cisco’s software thesis as a long-term outlook may be, the vendor continues to see challenges.

In its fiscal fourth quarter, Cisco generated 31% of its total revenue from recurring offers, an increase of almost four points from a year ago. Revenue from subscriptions increased 18% and now represents over 50% of the vendor’s software revenue. However, total product orders for the fourth quarter were flat.