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Why Cisco’s Acquisition of Broadsoft Is a Strategic Fit

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Cisco plans to acquire Broadsoft

In October, Cisco Systems (CSCO) agreed to partner with software company BroadSoft (BSFT) for $1.9 billion in cash. BroadSoft owns about 19 million subscribers and is a provider of cloud calling, contact center solutions, and other services. According to the deal, Cisco will pay $55 per share in cash for each share of BroadSoft. The acquisition has been approved by the companies’ boards of directors and will close in the first quarter of 2018.

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How will Cisco benefit from the deal?

Broadsoft is expected to help Cisco offer a broader range of collaboration solutions to its clients. BroadSoft’s deal will complement Cisco’s businesses as its product offerings will fit in Cisco’s on-premise and enterprise-centric HCS (hosted collaboration solution) offerings. Cisco CEO Chuck Robbins told CNBC that the deal would enable Cisco’s enterprise clients and small businesses to connect better with consumers.

This deal would help Cisco to diversify its business away from its stagnating switches and routers, which have been underperforming and seeing declining revenues. Like other technology firms, Cisco also wants to focus on high-growth areas such as security, the Internet of Things (or IoT), and cloud computing. Cisco earlier teamed up with Alphabet’s (GOOGL) Google for cloud support. The partnership involves developing new hybrid cloud solutions.

Acquisitions in the past

Cisco has depended on acquisitions for the past few years to drive revenue growth. In its fiscal 1Q18, the company acquired Springpath, Viptela, and Observable Networks to beef up its top line. BroadSoft has also served large telecommunications companies such as Verizon (VZ) and AT&T (T), which then resell the software to their business customers.

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