SAN FRANCISCO - Cisco Inc. has agreed to pay $1.2 billion for closely held Meraki Inc., adding technology that helps businesses manage Wi-Fi networks remotely and expanding its lineup of products for mid-sized customers.
Cisco, the world's largest maker of computer networking equipment, is using a combination of cash and retention-based incentives to pay for the acquisition, the San Jose, Calif.- based company said Sunday.
CEO John Chambers is seeking to capitalize on the booming demand for smartphones and tablets in the workplace by snapping up a company that helps businesses manage security and wireless access points via the Internet. The deal is aimed at broadening the customer base as Cisco cuts costs, shuts underperforming divisions and trims prices to fend off rivals such as Hewlett-Packard Co. and Juniper Networks Inc.
"The valuation reflects that Wi-Fi, as a market, has very compelling growth prospects," said Erik Suppiger, an analyst at JMP Securities in San Francisco.
San Francisco-based Meraki expects about $100 million in bookings this year, and its employee base has ballooned to 330 from 120, Meraki CEO Sanjit Biswas wrote in a letter to employees discussing the deal.
Cisco approached Meraki with the offer several weeks ago with the pitch of extending the company's reach with worldwide distribution through Cisco's sales apparatus. Cisco was attracted by Meraki's technology and financials, Biswas wrote.
Meraki will allow Cisco to expand in software markets that have high profit margins and recurring revenue, Hilton Romanski, vice president of business development for Cisco, said on a conference call Monday with analysts.
"This is a very attractive combination of a high-margin, high-growth software business," he said.
Entering businesses with recurring revenue is important for Cisco because 80 percent of the company's sales every quarter now come from new business, Frank Calderoni, Cisco's chief financial officer, has said.
Cisco has been shifting its focus to software and services, areas that are more profitable and with more predictable revenue than sales of networking hardware. Cisco intends to acquire companies specializing in those markets and make them a bigger part of Cisco's business, Chambers said a week ago.