Cisco closes in on OpenDNS

Contact: Brenon Daly

In its third-largest IT security acquisition, Cisco will pay $635m in cash for OpenDNS to shore up its threat-detection and -prevention portfolio. The deal comes a year after the networking giant participated in the 10-year-old startup’s series C funding round. (The $35m investment announced last May brought the total amount raised by OpenDNS to $51m.)

The purchase continues Cisco’s practice of paying rich multiples as it shops in information security. According to 451 Research’s M&A KnowledgeBase , Cisco has now acquired 18 security companies in the past decade and a half, mostly smaller startups. (All but three of those transactions cost the networking giant less than $200m.) We would note that although Cisco’s security business generates less than 5% of its total revenue, infosec acquisitions have accounted for 16% of the company’s overall M&A activity since 2002.

In its other large infosec purchases, Cisco paid $2.7bn, or nearly 11x trailing sales, for Sourcefire and $830m for IronPort Systems, which works out to slightly more than 8x trailing revenue. OpenDNS generated about $40m in trailing bookings and was on pace to double annual bookings to roughly $60m for full-year 2015.

That would mean Cisco is paying about 15x trailing bookings for fast-growing OpenDNS. Obviously, the price-to-revenue multiple for OpenDNS would be higher than that, likely falling in the neighborhood of twice the valuation that Cisco paid in its two other significant infosec deals. The valuation of the network security vendor stands out even more considering the recent focus in the IT security industry on endpoint protection, which has resulted in valuations there being pushed to historically high levels. Cisco expects to close the pickup of OpenDNS by the end of its first fiscal quarter, which wraps in October.

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