Cisco Systems Inc will buy software company BroadSoft Inc for US$1.71 billion, it said on Monday, in a deal that boosts Cisco's collaboration tools and helps the company diversify its offerings away from switching and routing.
Shares in BroadSoft, which specializes in software used by major cable and telecommunications networks, rose 1.35 percent after Cisco offered $55 per share for the company, giving shareholders a premium of 2 percent to last Friday's closing share price.
The offer price is more than 25 percent higher than where BroadSoft shares were trading before Reuters reported on Aug. 30 that the company was exploring a potential sale.
The purchase gives Cisco a stronger foothold in selling products to big telecom firms which can then provide integrated mobile, video, voice and other forms of electronic communications to their small and medium-size business customers.
Rob Salvagno, Cisco's vice president of corporate development, said in an interview that BroadSoft's products, which are delivered over the cloud, or the Internet, will improve Cisco's collaboration portfolio. Cisco's current products in that unit such as WebEx, are based on premise, which means they are installed on devices.
Cisco shares also rose about 1 percent.
"This is a smart acquisition that gives Cisco more firepower to sell into its massive installed base over the coming years," said Daniel Ives, chief strategy officer at research firm GBH Insights.
The deal, valued at $1.9 billion including debt, is expected to close during the first quarter of 2018, the companies said in a statement.
After the deal, BroadSoft employees will join Cisco's unified communications technology group.
Cisco, like other large technology companies, has been focusing on high-growth areas such as security, the Internet of Things and cloud computing.
BroadSoft provides software and services that enable mobile, fixed-line and cable service providers to offer so-called unified communications over their internet protocol networks.
BroadSoft has historically sold its products to large telecommunications companies such as Verizon Communications and AT&T, which then resell the software to their business customers. Cisco and BroadSoft share a lot of customers, Salvagno added.
The BroadSoft deal is Cisco's second major acquisition this year following a $3.7 billion deal for privately held AppDynamics Inc in March.
"With BroadSoft, Cisco will be able to cover a wider swath of the market," Drexel Hamilton analyst Brian White wrote in a note.
Jefferies and Qatalyst Partners advised BroadSoft on the deal while Bank of America <BAC.N> advised Cisco.
(Additional reporting by Arjun Panchadar in Bengaluru; editing by Patrick Graham and Susan Thomas)