Usually a bite-sized acquirer,
is starting to show an appetite for bigger deals.
On Tuesday, the leading supplier of network routers and switches disclosed plans to buy
, a software supplier for call centers, in a stock-pooling transaction valued at $2 billion. The acquisition is expected to close in the quarter ending July 31.
The deal, a surprisingly ambitious one for Cisco, comes as its competitors are escalating their own M&A efforts. Also on Tuesday, Stockholm-based telecom supplier
said it will buy startup
, a builder of network routers that will compete with Cisco, for $450 million cash. And
said it will pay $340 million in cash and stock for
, which was founded by former Cisco executives.
Amid the feeding frenzy, Cisco has quietly departed from its slow-but-steady style of acquiring small, private companies. The company has bought bigger companies before -- In April 1996, it bought
, a builder of network switches for carriers, for $4 billion in stock -- but there are signs that Cisco could be going after bigger companies with more frequency now.
So while Ammar Hanafi, director of business development with Cisco, says the size of the GeoTel deal is "atypical," industry followers believe that with competition increasing, Cisco has decided to broaden its campaign to develop a rich array of voice and data network products.
"I think that Cisco-GeoTel is a telling transaction," says Greg Rossmann, principal with the investment bank
. "It's an announcement that their risk profile is more aggressive and broader than it was in the past."
The risk, says Rossmann, is in branching from Internet infrastructure into call-center software -- not the company's core expertise.
Nor can Cisco stay immune to the forces that are pushing its peers into more acquisitions. "I think the pace at which this market is moving is putting pressure on all of us" to develop network technology and acquire companies where needed, says Laura Howard, marketing vice president with Stockholm-based Ericsson.
Cisco is spending more on GeoTel than it has on almost any acquisition in recent memory. For example, last week it paid $445 million in stock for two private startups,
. Cisco also will pony up more than $6 million in stock per GeoTel employee, signaling that overall M&A prices are rising in this sector. Cisco paid roughly $4 million in stock per employee for
in late 1996 and also for
Cisco's acquisition history doesn't include many expensive, public companies. At the time of its purchase by Cisco, StrataCom was an established, publicly-traded company with a sales force. Analyst David Passmore with consulting firm
says that digesting it involved some "heartburn."
GeoTel has a sizable sales staff and customer base which will take some work to integrate with Cisco's own. Cisco has repeatedly stated that mergers of mature tech companies, such as
pending acquisition of
, are difficult because of those challenges. Cisco usually takes a simpler tack, acquiring startups that are basically a team of engineers with a promising product.
"This is a different kind of an acquisition," says Cisco vice president Mike Volpi, the San Jose, Calif.-based company's point man on most of its deals. To avoid culture clashes, Cisco intends to give GeoTel's salespeople independence.
Cisco is entering a market controlled largely by telecom rivals Lucent and Nortel -- that is, the market for corporate call centers, which for a decade have been slowly integrating computer functions with telephone systems. GeoTel software advances this trend, enabling service-desks to sort incoming customer calls and minimize waits.
Even with the risks, many industry experts say Cisco is making a shrewd wager.
Cisco is wise to use its towering share price to pay handsomely for a company's market position and talented employees, says Phil Lamoreaux with
, a Cisco shareholder. "If it's strategic to their business, whether they paid $1.5 billion or $2 billion is petty change to them."