Cisco’s $1.2 Billion Meraki Takeover

It didn’t take long for Cisco to complete its takeover of Meraki. Soon after the news was made public, the company announced the successful acquisition of Meraki for $1.2 billion. The cyber world sprang into action following the sale with market experts and industry insiders offering their opinions on the impact of the sale and why Cisco agreed to pay such a high amount. For those unfamiliar with the name, Meraki is the first network infrastructure company which is cloud-managed and helps organizations build both wireless as well as wired networks.

The takeover of Meraki for such a high amount pretty much certifies the fact that Cisco wanted to acquire it. Had they relented or offered a lower price, one could have argued that they might be testing the waters or just checking their options. The fact that they have agreed to pay $1.2 billion for a networking company which at best offers services to small and midsized companies could mean Cisco wants to enter the midmarket.

Meraki currently employs 330 people and has a wide range of clients. One common feature of their clientele is that none of them are in the target market of Cisco. By purchasing the company, Cisco has opened up avenues to expand its market share. Also, it provides Cisco the resources it needs to combat the rise of Aruba Networks. It is expected that Aruba can become a leading player in the industry in years to come. It does seem like Cisco has shown foresightedness with its takeover of Meraki.

While the increased market share and client base are reasons good enough, Cisco also stands to gain from a couple of other factors.

• Meraki has built its service structure on cloud hosting. What this means is that a technician need not be physically present to diagnose and repair problems faced by users. It is a new arena for Cisco and who better to enter it with than Meraki, the undisputed leader.
• The cost of the services provided by Meraki is a fraction of what the other companies in the industry bear. This would allow Cisco the option of lowering their prices and attracting more customers. Without Meraki’s low-cost services, this would not be possible.
• Last, but not the least, Meraki helps distribute both wireless and wired networks. Hence, it has a broader platform and a wider range of services than Cisco. When combined, the services offered by Cisco now would span the entire scope of networking.

While the $1.2 billion price tag cannot be ignored, the reasons listed here pretty much justify it.

[Image via constellationrg]