Faced with shrinking fortunes in its core router and switch businesses, Cisco Systems, Inc. (NASDAQ:CSCO) may acquire Imperva Inc (NYSE:IMPV) to strengthen its fledging security business. Cisco’s router revenue eased 4%, while switch sales were flat in 2015. But in recent years, the company has been trying to reduce its reliance on routers and switches sales as it faces growing competition from the likes of Huawei and Hewlett Packard Enterprise Co (NYSE:HPE).
As part of the efforts to pivot away from the ageing router and switch business, Cisco is pursuing opportunities in collaboration, video provider and security solutions. Of these three opportunities, security is Cisco’s fastest growing new business. The company reported a 13% increase in security revenue in 2015 and security sales now account for nearly 4% of the company’s total revenue.
The growth of the security business at Cisco has come on a string of acquisitions, with the company swallowing several security firms including Lancope, ThreatGRID and SourceFire over the past few years. But Cisco needs to do more because its security solutions are far from being comprehensive, which means that it is still leaving money on the table in the security sector.
Imperva is a likely buyout target
To beef up its security business, there have been rumors that Cisco is interested in acquiring either Imperva or FireEye Inc (NASDAQ:FEYE). However, Imperva seems to be a more likely buyout target.
Cisco seems to be perfectly positioned to acquire Imperva. The company generated $12.4 billion in free cash flow over the past 12 months, yet it would only need $1.3 billion to bring Imperva under its wing given the latter’s current valuation. FireEye would cost a bit more, nearly $2 billion. Furthermore, FireEye doesn’t seem interested in a buyout deal. On the other hand, Imperva has shown interest in selling itself to the highest bidder.
A promising security market niche
Imperva is a promising security business playing in the web app firewalls (WAF) market. The WAF market is projected to grow at a compound annual growth rate, or CAGR, of 17.3% in the five years to 2019. As such, there is a compelling case of Cisco to want to acquire Imperva.