Cisco Announces $1.9B Deal for BroadSoft

Networks giant Cisco has now confirmed a deal to acquire unified communications specialist BroadSoft as it continues to expand outside its core hardware business and looks to software markets for revenue growth. At a cost of $55 per share for the company, Cisco has agreed to pay roughly $1.9 billion in total for the transaction. The companies expect the deal to close in the first quarter of 2018.

Rumors of a deal were first reported by Bloomberg, with a goal for Cisco of solidifying its leadership position in the market for cloud-based unified communications services. These unified services have proven popular among enterprises looking for more sophisticated communications offerings and efficiency savings to boot.

Based in Maryland, BroadSoft Inc. offers services in about 80 countries, mainly through service providers that include some of the world's biggest fixed-line and mobile operators. It today claims to serve more than 600 operators.

Cisco Systems Inc. (Nasdaq: CSCO), which deals mainly with enterprise customers, could see BroadSoft's relationships as an important new channel to market, although it would also be able to combine BroadSoft's products with its own for existing and prospective enterprise customers.

Among other things, BroadSoft has developed a "contextual intelligence" engine that allows customers to pull together information about a third-party calling the organization based on previous interactions.

Citing sources familiar with the matter, Bloomberg said a deal could be announced as soon as Monday and that Cisco sees BroadSoft in particular as a means of securing its position in the contact center and collaboration markets. Cisco confirmed the news with an official announcement a short time later.

The news follows a Reuters report in August that BroadSoft was then exploring strategic "options" with investment bank Jefferies and might seek a sale to a larger communications networking vendor or private equity player.

Conditions may have grown tougher for BroadSoft since rival Mitel Networks Corp. announced in July that it would acquire another unified communications player called ShoreTel Inc. in a $530 million deal. (See 'For Sale' Rumor Lights Fire Under Broadsoft's Stock.)

BroadSoft also faces competition from an array other big-name and specialist firms, including Microsoft Corp. (Nasdaq: MSFT), 8x8 Inc. (Nasdaq: EGHT), RingCentral Inc. and Vonage Holdings Corp. (NYSE: VG).

Reports earlier this year suggested that both 8x8 and RingCentral were also looking for potential buyers in a possible sign of looming consolidation.

While BroadSoft has been able to grow sales, it has struggled to generate profits. In the April-to-June quarter, it reported a 9% year-on-year increase in revenues, to $88.8 million, but also recorded an operating loss of $1.5 million, having made a small profit in the year-earlier period.

The company is believed to be on the verge of finalizing some big deals with Tier 1 operators such as AT&T, Verizon, BT, Deutsche Telekom and Telstra, which would use the company's technology to provide cloud-based unified communications services to enterprise customers. Deals of that nature could spur earnings improvements next year.

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The proposed BroadSoft takeover would be Cisco's eighth acquisition so far this year, according to Bloomberg, and reflects a strategic push into the cloud market aimed at offsetting a slowdown in more traditional business activities.

Cisco reported a 3% decline in sales in its last fiscal year, to $48 billion, and is guiding for a decline of between 1% and 3% in revenues for the current August-to-October quarter.

Like other equipment giants, the company faces a challenge from the commoditization of hardware and the growing importance of software in the networks market.

Through a phenomenon called white box networking, communications service providers and enterprises are looking to run network functions as software programs over common, off-the-shelf servers. The development threatens traditional vendors that have thrived by selling proprietary boxes in which hardware and software are closely integrated.

Cisco's share price has gained 17% in value so far this year, reaching $34.25 on Friday, while BroadSoft's is up 31% since the end of last year, at $53.90.

— Iain Morris, News Editor, Light Reading