On Monday, Cisco announced the acquisition of BroadSoft for about $1.9 billion, to penetrate further into software and cloud services.  According to Cisco, the deal is expected to be concluded by the first-quarter of 2018. BroadSoft employees will join Cisco’s Unified Communications Technology Group, which is headed by Vice President and General Manager, Tom Puorro.

cisco BroadSoft
By Cisco [Public domain], via Wikimedia Commons

Making acquisitions to grow

Cisco, which currently earns most of its revenue from the traditional hardware segment, is making a shift toward the less-expensive software-based services. In 2017, the company has already announced eight acquisitions (excluding BroadSoft), according to Bloomberg. Just last week, Cisco expressed intentions to acquire Perspica, and integrate it into AppDynamics, a company that it acquired earlier this year.

Speaking to CNBC after the 2016 election, Robbins said the change in tax policies, mainly the repatriation of overseas cash, could encourage the company to go for mergers and acquisitions.

Cisco, the world’s largest networking gear manufacturer, would pay $55 per share, in cash. On Friday, BroadSoft shares closed at $54.90, giving it a market capitalization of $1.67 billion. The $55 per share represents a premium of 28% over BroadSoft’s closing price on August 29, which is around the time when Reuters reported that BroadSoft is exploring strategic options.

Speaking to CNBC, CEO Chuck Robbins said the acquisition would assist Cisco’s enterprise clients and small businesses to connect better with customers. “This acquisition of BroadSoft actually gives us the most comprehensive set of collaboration solutions for our customers,” Robbins said.

How could BroadSoft help Cisco?

With the WebEx back in 2007, Cisco made its first major move in the enterprise collaboration and communications market. Since then, the company has been building on that, but WebEx remained a key part of its enterprise communications strategy. Now, the acquisition of BroadSoft can be seen as a continuation of that purchase a decade ago, notes TechCrunch. Just last year, BroadSoft came up with its own team communications tool, Team-One.

“BroadSoft’s portfolio is complementary to our existing on premises and enterprise-centric Hosted Collaboration Solutions (HCS), as well as Cisco’s overall cloud investment strategy,” Rob Salvagno, VP of corporate business development at Cisco, said in a blog post.

With the acquisition of BroadSoft, Cisco will get a significant presence in the cloud-based communications products and services, a segment that it still lacks, notes an analyst at William Blair & Co., Jason Noah Ader. Cisco currently provides communications services to businesses, but BroadSoft’s business model is focused on making these services available via Internet, and host them in the cloud.

BroadSoft, founded in 1998 and went public in 2010, sells its products to big telecommunications companies such as Verizon and AT&T, who then resell these products to their corporate clients. Lately, BroadSoft made efforts to alter its business model by selling products directly to the end customers, thus, risking its relationship with the telecommunications companies, noted a report from Barclays PLC, according to CNBC.

At 11 a.m. Eastern, Cisco shares were up 0.63% at $34.47. Year to date, the stock is up over 14%, while in the last three-months, it is up over 8%.