The Deal: Cisco Acquires Sourcefire for $2.7B

NEW YORK ( The Deal) -- Cisco Systems ( CSCO) said Tuesday, July 23, it agreed to acquire network security software maker Sourcefire ( FIRE) for about $2.7 billion in cash.

The purchase price, valued at $76 per share, represents a 28.6% premium over the target's Monday closing stock price of $59.08. The news sent Sourcefire shares soaring by almost 28%, to $75.79, on Tuesday morning.

Columbia, Md.-based Sourcefire, founded in 2001, makes threat detection software such as firewalls. Sourcefire reported a 2012 revenue of nearly $223 million. It has 650 employees.

"Through our shared view of the critical role the network must play in cybersecurity and threat defense, we have a unique opportunity to deliver the most comprehensive approach to security in the market," said Cisco corporate development vice president Hilton Romanski in a statement.

Sourcefire founder Martin Roesch wrote in a blog posted on Sourcefire's Web site that the company will be "able to more quickly innovate, develop and provide products and technologies that continue to solve your biggest security challenges."

Wells Fargo Securities LLC analyst Gray Powell wrote in a Tuesday research note that the deal equates to a roughly 9.3 times multiple of Sourcefire's revenue in 2012 and a 7.8 times multiple of expected 2013 revenue. Excluding financial incentives, the deal is valued at roughly 7.9 times 2012 revenue and 6.6 times expected 2013 revenue, Powell noted.

Powell expects Fortinet ( FTNT), Palo Alto Networks ( PANW) and Check Point Software Technologies ( CHKP) to trade up on the news. The analyst said Fortinet trades at about 4.4 times expected 2013 revenue, while Palo Alto Networks and Check Point trade at 7.7 times and 5.9 times, respectively.

Bidders have been circling Sourcefire for a few years. In 2005, the company agreed to a $225 million deal with Israeli network security provider Check Point Software Technologies. However, that transaction was shot down by U.S. regulators because they viewed the acquisition by an international buyer as a national security threat, mainly because some U.S. government agencies use Sourcefire's software.

In 2008, Sourcefire received a $187 million unsolicited bid from Barracuda Networks, which was later increased to $206 million. Sourcefire still rejected it as too low.

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