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Acacia Communications Jumps by ~35% on Cisco’s Acquisition Bid


Jul. 9 2019, Updated 3:14 p.m. ET

Cisco’s acquisition bid

On Tuesday, Acacia Communications (ACIA) jumped by nearly 35% after it revealed that Cisco (CSCO) intends to acquire the company. According to a definitive agreement between the two companies, Cisco has agreed to acquire Acacia for $70 per share in cash in a $2.6 billion deal.

On Monday, Acacia stock settled at $48.06, which means Cisco is ready to pay about a 45.7% premium on that. The process of acquisition is likely to be completed during the second quarter of Cisco’s fiscal 2020 upon getting necessary regulatory approvals.

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The Maynard, Massachusetts-based Acacia makes high-speed optical interconnect technologies for web-scale companies, service providers, and data center operators. Expressing his optimism about the deal, David Goeckeler, executive vice president and general manager of Cisco’s networking and security business said, “The acquisition of Acacia will allow us to build on the strength of our switching, routing and optical networking portfolio to address our customers’ most demanding requirements.”

How could acquisition help Cisco?

In the last couple of quarters, Acacia Communications has managed to accelerate its revenue growth rate. In the first quarter, the company reported a 44.2% YoY rise in its revenues to $105.2 million after posting an 11.8% decline in its full-year 2018 revenue.

In the last quarter, Acacia’s adjusted net profit margin also expanded to 14.6% as compared to 10.6% in full-year 2018. According to Wall Street analysts’ consensus data compiled by Thomson Reuters, the company’s revenue is expected to grow by nearly 34.0% in full-year 2019. This year, analysts expect Acacia’s adjusted net profit to surge by nearly 19.9% and its adjusted net profit margin is likely to expand to 15.1% in 2019.

While the Acacia acquisition is likely to contribute positively to Cisco’s financials, it could also help Cisco compete better with its peers in the telecommunications networking segment.

As of yesterday’s closing, Acacia Communications was trading with 26.5% gains YTD as compared to a 22.1% rise in the NASDAQ Composite Index. Meanwhile, Cisco Systems has gone up by 29.7% YTD.

At 1:20 PM ET on Tuesday, Cisco stock was trading with 0.5% gains after the announcement of Cisco’s acquisition bid for Acacia Communications.


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