The Exec That Signed The Check Explains Why Cisco Spent $1.2 Billion To Buy A $100 Million Company (CSCO)

By admin on January 6, 2013

Meraki was at “a $ 100M run rate” when Cisco paid a whopping $ 1.2 billion to acquire it last month, confirms the exec that lead the deal.

That’s a pretty hefty valuation and it prompted someone to post a question on Quora asking why Cisco paid so much. (Meraki offers a cloud service to help businesses manage their Wi-Fi networks.)

The guy that signed the check, Robert Soderbery, stepped up to answer. Soderbery is senior vice president of Enterprise Networking Group at Cisco.

He gave three reasons:

Meraki has a good stake in a $ 5 billion market selling network management services to small and mid-sized markets;
he believes Cisco could make the tech popular with enterprises and the $ 20 billion market they represent;
he wanted to acquire the Meraki founders and team.

Here’s how he explained it on Quora.

Let me share my perspective on this question. (Full disclosure: I run the enterprise networking business at Cisco, and signed the check for Meraki).

… So, why did Cisco pay $ 1.2B for Meraki? That is the easiest part of the question to answer.

1. The market for networking technology in small and medium sized enterprises is nearly $ 5B. Meraki brings a compelling offer, including wireless, switching, routing, security, along with services such as mobile device management and WAN acceleration. They are at a $ 100M run rate and essentially doubling year over year. We are convinced their technology provides significant advantages for customers in this segment. And they had demonstrated a viable business model for rapidly scaling the business.

2. Meraki (now the Cloud Networking Group at Cisco) has spent six years thinking about how to build cloud managed networks. While the Meraki offer is focused on the mid-market, it is easy to see ways to leverage Meraki technology more broadly within Cisco. So we believe Meraki technology can impact not just the $ 5B mid-market, but the $ 20B+ large enterprise market.

3. The Meraki founders have built a great company, and a great team. We believe they will add new talent and capabilities to Cisco in both development and go-to-market. They are staying in San Francisco, will maintain the Meraki culture, and form a new hub for cloud based software development. In fact we have signed a new lease on a large space in Mission Bay, so we can accelerate investment and hiring.

Now that the acquisition is done (we closed December 20th), the Meraki founders – Sanjit Biswas, John Bickett and Hans Robertson – are signing up for their next challenge: building a $ 1B cloud networking business for Cisco.

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