Group-3

Case submission on
Cisco Systems: New Millennium – New Acquisition Strategy

In partial fulfilment of Course:

Mergers, Acquisitions and Corporate restructuring

Submitted by:

Group 3

Ashwin Joshi – P19075

Ayushman Banerjee– P19005

Maddula N K Srikar – P19050

U V Chaitanya Varma – P19111

Date of Submission: 21st October 2020

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Q1. What was Cisco’s corporate strategy during the 1990s? What type of value did
Cisco offer as a parent to its businesses? What was the role of Cisco’s Corporate
Development office?
Cisco’s strategy was to dominate the networking solutions market because of the growing
internet usage and its growing popularity. It aimed to be one-stop solution for all networking
needs of the customers through a variety of product lines on offer. It relied on partnerships
with other organisations such as Telcordia, EDS, INS for network solution such as execution
as well as consulting. In order to achieve this, it needed interdependence on external parties
and it moved away from self-sufficiency as it was difficult to do it alone for Cisco. It pursued
acquisition strategy and mainly focussed on smaller companies as M&A integration of
mature companies was difficult. They added value to Cisco through their product portfolio
and Cisco would leverage its financial and manufacturing strength to sell those products
through its distribution channels. Cisco’s corporate development group was the entity that
was responsible for the acquisitions. It had earned a reputation of maintaining the disciple
with respect to the acquisitions such as the evaluation criteria, the mandatory checks,
synergies, price etc

Q2. What was unique in the way Cisco managed its acquisitions in the 90s? Why did
Cisco represent a benchmark as an acquirer?
Cisco had formulated a well-defined and structured process for the acquisitions. They were
very clear as to what is their long-term strategy, whom should they acquire and how to go
about it. They had a discipline while following these processes and had a set of evaluation
criteria for the acquisitions. The due diligence process was focussed on the smooth
integration of the companies. They also would walk-away from the deals if the deals did not
meet their selection criteria, no matter how lucrative the deal looked. Some of the salient
features of its acquisition strategy were:
1. Cisco looked for vision synergy between the companies and believed that chemistry was
an important factor which as very hard to define
2. They looked for geographical proximity in its acquisitions as geography was key especially
in the large M&As
3. Quick win in terms of value and returns to shareholders as they should be benefited from
the acquisition.
4. They aimed for long term win for all the 4 constituencies – shareholders, employees,
customers and business partners.
5. Cisco had developed an ecosystem involvement as its executives were also board members
od startups thus giving it an information advantage which was difficult to replicate for others.
Cisco’s integration process focussed on 3 goals:
a. Employee retention
b. Followup on new product development
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c. ROI
Cisco believed that in high-tech acquisitions one is acquiring people which is future and not
market shares. Their turnover was 8% for acquired employees while it was 20% for other
companies.

Q3. What were the limitations of Cisco’s acquisition strategy?

Limitations of Cisco’s acquisition strategy were:
 Cisco’s quality of due diligence had affected over a period of time because it was
overload as a result of the increased pace of its acquisitions. This also cause an impact
on its future product lines
 It had to acquire companies that had not even shipped a product of their own thus
causing uncertainty of the future
 Duplication of developmental efforts across segments, causing competition between
difference teams within Cisco
 Cisco was increasing in its size through lot of acquisitions thus causing an increase in
the shareholders and their expectations which would be difficult to meet
 Cisco’s acquisition approach focussed on product development caused inability to
enter new markets

Q4. How has Cisco’s acquisition strategy changed over the past five years?
Cisco changed its focus from increasing its revenue to increase in profits. Earlier they were
acquiring at a rapid pace leading to internal competition, but in last 5 years they emphasized
more on deliberation and teamwork. There was a focus shift towards building versatile new
products internally rather than niche products. They started again focussing on R&D
internally. New acquisition strategy encompassed acquiring fewer and which are more
matured companies.
Cisco also underwent an organisational restructuring to transform itself from decentralised
approach to focussed centralised technology focused approach. This can be seen from its
handful new-style acquisitions which it called as ‘platform deals’.

Q5. How should Cisco handle the negotiation of IronPort? Which integration approach
for IronPort would you recommend to Palmer?

Cisco was looking after acquisition of IronPort because of its advanced and successful
product portfolios – one was Async OS, an operating system high performance and best in
class security, while another was SenderBase, world’s largest email and web traffic
monitoring network.
Cisco can keep IronPort as separate SBU or entity offering security solutions to customers.
The reasons being: there is also an internal resistance in IronPort from integrating with Cisco.
This may lead to resentment among employees especially in product and sales teams. Thus, it
would defeat the purpose of acquisition synergy. Sales and product teams are very crucial and
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attrition in these departments would be a loss for Cisco and its acquisition and would make
the deal unviable. IronPort can maintain its go-to-market strategies, existing channels and
third-party relations, though using Cisco’s brand name would add more value to its offerings
and it would get benefited. Cisco’s extensive distribution network can be utilized along with
IronPort’s existing channels. The customers can be charged by Cisco through upfront for
equipment and subscription charges for IronPort’s solutions/services.