Confidential slide presentation on Sourcefire acquisition by Cisco

Cisco Hardware Quotes Call Toll Free 877-549-2680 or 828-277-7272

Brad Reese speaks out
Learn more about Brad Reese...
Archive

Aironet

Competitive Lab Tests

Confidential slide presentation on Sourcefire acquisition by Cisco

According to Sourcefire's 10-Q filing with the SEC, Cisco's paying a stunning $2.7 billion in cash for a company that had a -$1.372 million operating loss on $56.164 million in sales for its most recent quarter ending March 31, 2013.

Hummelstown, PA: Tue, 7/23/13 - 11:59pm View comments

Update 7/30/2013

Sourcefire's financial results ending 7/30/2013

Martin Roesch founder of Sourcefire, "will become Vice President and Chief Architect for security, reporting directly to Chris Young, SVP of the Security Group. Further, we will maintain our presence in Maryland and the greater Washington D.C. area."

learn more...

Update 7/26/2013

Channelnomics: Security Channel Skeptical About Cisco’s Sourcefire Buy

Over the past 2-years Cisco's security products have been under the leadership of Cisco senior vice president, Chris Young.

As detailed in the below spreadsheet, Cisco's security sales have not exactly been "on fire" lately.

So perhaps Cisco's acquisition of the Snort open-source intrusion detection system (IDS) vendor, Sourcefire, will reignite Cisco's faltering security sales.

Cisco's quarterly security sales (view the spreadsheet without frames):

Source: U.S. Securities and Exchange Commission

According to RBC Capital Markets analyst Mark Sue:

"Sourcefire generated CY12 revenues of $223M (+35% YoY), while Street revenue estimates for CY14 are $336M (+51% YoY) and had gross margins of 77.2% and operating margins of 9.4% in the most recent reported March quarter. "

Sourcefire's Annual Sales Results

Source: U.S. Securities and Exchange Commission

Sue continued:

"The broader portfolio that Sourcefire brings may turn into a catalyst for Cisco's important business unit, which is on a run-rate of $1.3B a year. The deal represents 11.7x CY13 and 7.7x CY14 Street revenues or about 6.5X EV/Sales on Street CY14 estimate."

Well it certainly appears that Cisco, the phenomenally successful tax dodger, can afford to overpay $2.7 billion in cash ($76 per share) to Sourcefire shareholders like Sequoia Capital (previously, Sequoia successfully forced Cisco into overpaying $747 million for the now dumped Flip video camera).

Personally, I find it very interesting that in October 2005, prior to Sourcefire's IPO, Check Point Software Technologies had offered $225 million for the then privately held Sourcefire. Later in May 2008, not long after Sourcefire became a public company, Barracuda Networks unsuccessfully offered $186 million ($7.50 per share) for Sourefire.

According to Yahoo! Finance, the current Sourcefire (FIRE) Price-Earnings Ratio - P/E Ratio is a staggering 480.83 compared to the current Cisco (CSCO) Price-Earnings Ratio - P/E Ratio of 14.20

Sourcefire (FIRE) Stock Price Chart

Source: Yahoo! Finance

Sourcefire's Most Recent Quarterly Sales Results

Source: U.S. Securities and Exchange Commission

I mean, I've got to admit that I'm at a total loss on why Cisco is paying $2.7 billion of its shareholder cash for Sourcefire. The only logical explanation that makes sense to me is that Cisco CEO John Chambers is once again rewarding Sequoia Capital with Cisco shareholder cash (keep in mind that Sequoia founder Don Valentine was Cisco's first Chairman of the Board).