Cisco goes mobile in a $2.9 billion deal

Posted Oct 13th 2009 12:50PM by Tom Taulli
Filed under: Deals, Cisco Systems (CSCO)

Lately, it's been hard to keep track of the dealmaking at Cisco (NASDAQ: CSCO). But with a huge pile of cash and a need to find growth, the company is going back to its M&A roots -- in a big way.

The latest deal came Tuesday; that is, Cisco agreed to pay $2.9 billion for Starent Networks (NASDAQ: STAR), which develops infrastructure solutions to deliver multimedia on mobile devices. Keep in mind that a couple weeks ago Cisco purchased for $3 billion another multimedia operator, Tandberg (videoconferencing). And back in March, there was the $590 million deal for Pure Digital (which develops flip video cameras).

Profitable since 2005, Starent has built a strong technology platform, with more than 95 operator deployments in over 40 countries. In fact, the company has eight of the top ten 3G operators.

Essentially, Starent has a system with built-in intelligence to handle a variety of streams, like video, music, peer-to-peer, voice, and so on. This is certainly a key in today's world, in which mobile devices are getting more and more sophisticated. By 2012, smartphones are expected to grow about 24% per year and represent about a third of all handsets sold. Oh, and by 2012, it looks like about 60% of all data going across mobile networks will be from videos.

In other words, Starent should be a nice addition to Cisco's portfolio. What's more, the transaction is expected to add to earnings by 2012.

In morning trading, the shares of Starent were up 18.50% to $34.40.

Tom Taulli is the author of various books, including The Complete M&A Handbook.

Tags: Cisco, CSCO, inthenews, Starent Networks