Cisco Systems, Inc. (NASDAQ:CSCO) just announced plans to buy Sourcefire, Inc. (NASDAQ:FIRE) for $2.7 billion. The move helps bulk the networking giant up in an area where it had started to fall behind. Are Radware Ltd. (NASDAQ:RDWR) and Fortinet Inc (NASDAQ:FTNT) the next targets?
All Cash, Bail
Cisco Systems, Inc. (NASDAQ:CSCO) is paying $76 a share in cash for Sourcefire, Inc. (NASDAQ:FIRE), an over 28% premium to where the shares traded before the deal. Sourcefire, Inc. (NASDAQ:FIRE) has over 2,500 customers across 180 countries. It targets medium and large companies, and governments.
Sourcefire, Inc. (NASDAQ:FIRE)’s top line has been growing steadily for a decade, but it only turned profitable in 2009 after a string of share net losses. Although it has made money every year since then, first quarter sales were down compared to the fourth quarter of last year. The shares initially sold off on the news, but have since recovered.
That sales weakness, however, appears to have been a buying opportunity for Cisco Systems, Inc. (NASDAQ:CSCO), creating a quick windfall for shareholders. Although Sourcefire, Inc. (NASDAQ:FIRE) has solid prospects as a stand alone company, the all-cash deal doesn’t offer much upside unless a competing bid comes along. That’s not likely and the shares will drop if the deal falls apart. Take profits.
What the Buyers Gets
Cisco Systems, Inc. (NASDAQ:CSCO) will be buying a company that specializes in devices that monitor networks for security threats. Notably, Sourcefire, Inc. (NASDAQ:FIRE) recently launched products that look specifically for malware in network settings and, more interestingly, in the high-growth mobile space.
The purchase will bolster Cisco Systems, Inc. (NASDAQ:CSCO) in an area in which competitors have taken the lead. Although it doesn’t fully close the gap, it at least increases the company’s competitive position. Cisco Systems, Inc. (NASDAQ:CSCO)’s top and bottom lines had been growing steadily up until 2008. Although sales quickly picked up after dipping in 2009, earnings and profit margins have been more variable.
And the shares have been largely range bound since the technology bust at the start of the century. The last four years of seesaw earnings haven’t helped any. Although the Sourcefire deal isn’t a transformative deal, it shows that Cisco is working to address its weaknesses. That makes this around 2.7% yielder worth a look for growth and income investors. Note, too, that its price to earnings ratio of 14 is about two points lower than its five year average PE.
Radware Ltd. (NASDAQ:RDWR)’s specialty is denial of service attacks. This is when a computer system is flooded with requests to the point where it becomes overwhelmed and basically shuts down. It can be an incredibly costly form of cyber attack. The company sells a devices that monitors network activity looking for malicious behavior. The device reacts in real time to stop the attack.