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May 12, 2021
Cisco has perfected the art of the sub-billion-dollar takeover. In its last fiscal year, it snaffled six companies for a total purchase consideration of just $359 million, according to a filing with the US Securities and Exchange Commission. That followed the acquisition of five companies the year before, including a rare $2 billion splurge on a single firm (Duo, which should perhaps have called itself Trio and demanded $3 billion). In 2018, eight companies were bought for $3.2 billion.
The latest startup to end up with the US Internet equipment giant is an Israeli firm called Sedona Systems. It is well known to automation and optical enthusiasts in the telecom sector for its NetFusion product, which puts in the hard work of managing complex networks so that salaried employees can spend more time practising their golf swings.
Industry people have admired Sedona as one of automation's frontrunners almost since it was founded in 2014. By August 2016, it had received about $20 million in funding from investors, including Intel, NextStar and Bessemer Venture Partners. One of the claims made for NetFusion is that it coordinates the management of the IP and optical transport layers, each of which is usually managed by a different team of people. Customers have been able to slash "expansion capex" in half, reckons the company.
The other big attraction is that Sedona was supposedly never tribal. Whether equipment came from Cisco, Ciena or someone else, it did not discriminate and was able to work harmoniously with anyone's technology. Service providers with a medley of vendors in their networks crave this sort of interoperability.
Its survival at Cisco – a company with a vested interest in promoting its own transport technology – must now be in doubt. For that reason, this deal, reportedly for $100 million, is not dissimilar to Juniper's December takeover of Apstra, a specialist in automating the data center that took similar pride in being "vendor-agnostic." The acquisition by Juniper, an equipment rival to Cisco, created an obvious conflict of interest. So does Cisco's latest move.
Naturally, Cisco does not want to spoil the features that have made Sedona such a hot little number in the past. And there is precedent for a vendor-agnostic startup to fall into the hands of an optical equipment maker and thrive. In 2015, Ciena bagged Cyan in a deal valuing that business at more than $400 million. Blue Planet, its software, made $62.6 million for Ciena last year, up from just $16.1 million in 2017.
Customers sound chuffed, too. "We have Ciena in our optical network and the great thing about Blue Planet is that it is vendor- and technology-agnostic and obviously communicates with the underlying IP and optical transport components," said Andrea Dona, Vodafone UK's chief network officer, after a deal was announced for Blue Planet last week. His company, notably, uses Cisco, Juniper and Nokia in its transport network, besides Ciena. Curiously enough, it was Sedona that Vodafone Group was touting as a "preferred supplier" back in 2019.
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Still, it is hard to imagine that Cisco's customers will not be offered low-cost deals bundling Sedona with other Cisco goodies. In other words, the interoperable software comes with a dollar incentive to rely heavily on Cisco regardless. Judging by Cisco's blog on the takeover, Sedona looks destined to fall under the umbrella of Cisco Crosswork, a portfolio of automation products. Sedona Systems plus Cisco Crosswork equals complete modernized automation for Routed Optical Networking, is the title of that blog. And for the avoidance of doubt, the last bit – the Routed Optical Networking – also comes from Cisco.
Whatever the outlook, this seems like a smart move by Cisco given Sedona's reputation. "Our analysis is that Sedona brings Cisco capabilities that will drive significant capex, opex, as well as significant revenue synergies for CSPs [communications service providers]," said Francis Haysom, an analyst with Appledore Research, in a blog post. The $100 million fee that has been reported is not a huge investment for a company that made a profit of $11.2 billion on sales of $49.3 billion in its last fiscal year. Developing a rival product from scratch would conceivably have cost more.
Cisco was back on its takeover treadmill hours after announcing the Sedona buy. Socio Labs, a "modern event technology platform," was today's purchase, one that will complement Cisco's maligned Webex system. What it could really use is an acquisition that fuels growth. While its share price has gained 65% since mid-2016, annual sales have not changed over this period. At some point, investors may demand to see more from the software pivot.
— Iain Morris, International Editor, Light Reading
International Editor, Light Reading
Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).
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