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Networking equipment maker Cisco Systems Inc. (CSCO - Analyst Report) announced a definitive agreement to acquire cyber security firm Sourcefire, Inc. for $2.7 billion. The deal will be completed in the second half of 2013.

Cisco will pay $76 per share in cash for Sourcefire. After the announcement, shares of Sourcefire jumped 28% over Monday's closing price.

Columbia, MD-based Sourcefire was founded by Martin Roesch in 2001. It develops hardware and software for network security, including next-generation firewalls, intrusion prevention systems and advanced malware protection products.

A large number of its products are based on Snort, which is an open-source intrusion detection system (IDS). Sourcefire solutions have been downloaded 4 million downloads to date (company sources). The company is particularly strong in the government vertical.

Upon the completion of the deal, Cisco will strengthen its position in the network security market and acquire increased exposure to government and corporate customers. The acquisition will also allow Cisco to develop and offer end-to-end security platforms in the industry.

The acquisition comes at an opportune time when the Internet security market is evolving rapidly and Cisco is aligning its long-term growth strategy around the “Internet of Everything.” Other IT bellwethers such as IBM (IBM - Analyst Report), Juniper (JNPR - Analyst Report), Symantec (SYMC - Analyst Report) and EMC (EMC - Analyst Report) could also get acquisitive in order to boost core competencies.

Cisco Systems is the leading provider of IP-based networking services and other products. As a part of its acquisition strategy, Cisco bought 11 companies in 2012. In January, Cisco spent $475 million to purchase Intucell, a company that develops advanced self-optimizing network (SON) software to enable mobile carriers to plan, configure, manage and optimize cellular networks automatically.

The company continued its acquisition spree and bought SolveDirect, which provides cloud-based solutions for enterprises and service providers. Cisco also acquired data-virtualization start-up Composite Software for $180 million. Recently, it completed its acquisition of energy management solution provider JouleX for $107 million in cash and retention-based incentives.

We believe that these acquisitions will broaden Cisco’s customer base and network offerings, providing the company with a significant competitive edge.

Cisco’s revenues in the second quarter of fiscal 2013 increased 1.7% sequentially and 5.2% year over year to $12.1 billion. Products (78.0% of total revenue) were up 3.3% year over year to $9.4 billion. Services (22.0% of total revenue) jumped 12.5% year over year to $2.7 billion.

Cisco carries a Zacks Rank #3 (Hold).

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