The tech giant, Cisco Systems, Inc. (NASDAQ:CSCO), announced plans to buy Meraki for $1.2 billion in cash, along with retention-based incentives. The acquisition will boost Cisco’s infrastructure to develop simple, secure, cloud managed networks, for its global customer base of mid-sized businesses and enterprises.

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“The acquisition of Meraki enables Cisco Systems, Inc. (NASDAQ:CSCO) to make simple, secure, cloud managed networks available to our global customer base of mid-sized businesses and enterprises,” Cisco’s Enterprise Networking Group senior vice president, Rob Soderbery, said in a statement. “Meraki’s solution was built from the ground up, optimized for cloud, with tremendous scale, and is already in use by thousands of customers to manage hundreds of thousands of devices”.

Cisco plans to acquire Meraki as the IT industry is increasingly moving towards the mobile-cloud era. Meraki is known for offering one of the biggest wireless mesh networks for regular hot spot users. Meraki was the first company to come-up with Wireless-N to the outdoors.

The partnership with Meraki’s Wi-Fi and cloud-networking know-how will boost Cisco’s software-focused offerings.  Cisco also believes that the acquisition will help it simplify IT operations for its customers.

The acquisition is expected to close in the second quarter of Cisco’s fiscal year in 2013. The partnership will result in a new Cloud Networking group, led by Meraki CEO Sanjit Biswas. The company revealed on its website that it earlier planned to remain independent and go public, but it also said, joining Cisco will help it achieve its goal of hitting $1 billion in revenue each year.

“Cisco Systems, Inc. (NASDAQ:CSCO) appreciates the way in which we develop innovative products: by focusing on our customers and quickly trying new ideas in both software and hardware,” Meraki CEO Sanjit Biswas wrote in a letter to his employees about the acquisition, according to TechCrunch. “They’d like to see us continue to release new features and products in the years ahead and hopefully ‘cloudify’ other Cisco products”.

San Francisco based Meraki is a privately held company, founded by members of MIT’s Laboratory for Computer Science, with offices in New York, London, and Mexico. The company’s technology allows users Wi-Fi, switching, security, and mobile device management centrally managed from the cloud.

The world’s largest maker of computer networking gear, just last week, completed another acquisition of a software development firm, Cloupia for $125 million. Cloupia’s technology helps data center operators manage their resources.

Credit Suisse analysts call the move  very smart, and a value enhancing transaction–essentially the antithesis of CSCO’s acq of Pure Digital not so long ago. Meraki fits squarely with the software-centric strategic M&A focus recently espoused by CSCO’s CEO, John Chambers. And if Meraki is representative of the type of company CSCO will pursue, shareholders should be able to sleep better at night.

Wells Fargo Analysts note  that Cisco is attempting to lower its cost and make the company more competitive with the SMB segment, while creating a platform from which is can build a cloud based service. They could also be attempting to create a managed service offering for carriers.