Network equipment maker Cisco Systems is set to buy optical component maker Acacia Communications for $2.84 billion in cash, as part of the strategy to win more deals in the 5G network market.
The acquisition will enable Cisco, the largest enterprise networking supplier in the world, to expand its optical systems offerings to webscale companies, service providers, and data center operators.
At present, Cisco is unable to win big telecoms deals in the global telecom network space competing with Huawei, Ericsson, Nokia, ZTE and Samsung.
Maynard, Massachusetts based Acacia Communications reported revenue of $105.2 million (+44 percent) with gross margin of 47.4 percent in the first quarter of 2019.
The proposed acquisition will enhance Cisco’s technology for telecom service providers upgrading to 5G and put its optical portfolio ahead of the shift toward using plug and play devices across various communication segments, Morningstar analyst Mark Cash said.
Global internet traffic is projected to more than triple to 13.2 exabytes per day in 2022 from 4.1 exabytes per day in 2017, according to Cisco’s Visual Networking Index.
Revenue in Cisco’s infrastructure platform business, which includes switches and routers, rose 5 percent to $7.55 billion in its third quarter. That business is expected to get a boost from 5G communication networks, but Cisco executives have said they do not expect an impact until 2020.
Cisco CEO Chuck Robbins, who took the helm in July 2015, has made acquisitions a central part of his efforts to add muscle to the hardware giant’s newer growth areas such as the cloud, internet of things (IoT) and cyber security.
Cisco’s $70 per share offer represents a premium of about 46 percent to Acacia’s closing price on Monday.
The deal is Cisco’s biggest since its $3.7 billion purchase of business performance monitoring software company AppDynamics in 2017, Reuters reported.
Acacia designs and manufactures optical components and counts telecom service providers and data center operators as customers. Cisco is among its top 5 customers.
The acquisition is expected to close during the second half of Cisco’s full year 2020.