Cisco is moving ahead with a colossal $43.6 billion (US$28 billion) acquisition of software company Splunk, marking the company’s largest deal to date.

Networking giant Cisco has been in operation since the 1980s and has arguably faced some of its biggest challenges over recent years due to supply chain hiccups and slowed demand brought about by the pande mic.

Best known for its networking hardware, Cisco has been on a gradual, successful foray into software specialisation in recent years, and is currently on-track for software to make up half of its revenue by fiscal year 2025.

Now, Cisco has announced plans for a historic acquisition of cyber security specialist Splunk, signalling a further commitment towards software, security, and AI.

Cisco plans to acquire Splunk for US$157 per share in cash, representing approximately $43.6 billion (US$28 billion) in equity value.

The staggering acquisition marks the largest in Cisco’s long-running history, as well as the biggest technology transaction of the year.

Still, Cisco shows no signs of hesitation.

When detailing the acquisition, Cisco lauded Splunk as a “worldwide leader” in cyber security, software and observability, and said it expects the transactions to be cash flow positive and gross margin accretive as soon as the first fiscal year post-close.

Additionally, Cisco said the transaction will “accelerate Cisco’s revenue growth and gross margin expansion”, though Cisco stock slipped 4 per cent on Thursday following news of the acquisition.

Cisco boasts that the two companies, once combined, will become “one of the world’s largest software companies”, with Cisco CEO Chuck Robbins claiming the merger will position the companies at the forefront of AI-enabled security.

“We're excited to bring Cisco and Splunk together,” Robbins said.

“Our combined capabilities will drive the next generation of AI-enabled security and observability.”

The acquisition is posited to capitalise on the rapid acceleration of artificial intelligence, and lean into the companies’ security capabilities.

Through their merger, Cisco and Splunk are looking to hone in on threat detection and response capabilities for organisations, as well as threat prediction and prevention.

Specifically, Cisco says Splunk’s security capabilities compliment the networking giant’s existing portfolio – enabling the two to provide “leading security analytics” and “coverage from devices to applications to clouds”.

"Together, we will form a global security and observability leader that harnesses the power of data and AI to deliver excellent customer outcomes and transform the industry,” Splunk CEO Gary Steele said.

While there is little information on the precise solutions or products which may come from the acquisition, the companies are aiming to address data management and protection, as well as digital resilience.

“In today's hyperconnected world, data is everywhere, with every organisation relying on it to run their business and make mission-critical decisions every day,” Cisco said.

“Factoring in the acceleration and adoption of generative AI, expanding threat surfaces, and multiple cloud environments, it creates a level of complexity that is unlike anything organisations have faced.

“Together, Cisco and Splunk will address these challenges head on.”

Cisco said by combining the companies’ complementary capabilities in AI, security and observability, the acquisition will “unlock the true value of data” and help make organisations of all sizes more secure.

“The union of these two organisations will allow for greater investments in new solutions, accelerated innovation, and increased global scale to support the needs of customers of all sizes,” Cisco said.

The acquisition is expected to close by the end of the third quarter of 2024. Cisco faces a termination fee of $US1.48 billion if the deal is shelved.