Cisco To Buy Allegro Systems for $181M

With a deal struck Friday to buy Allegro Systems Inc. for $181 million, Cisco Systems is suddenly back in the acquisition game. After acquiring nearly two dozen companies last year, Cisco made no acquisitions in the first six months of this year.

Now, within two weeks, Cisco has bought two companies. In Friday's deal, Cisco will buy Allegro for up to $181 million in Cisco common stock. Cisco expects to complete the purchase by September, resulting in a one-time charge for Cisco of less than a penny a share.

Allegro makes acceleration systems for use in virtual private networks (VPNs). Corporations use VPNs as alternatives to more expensive dedicated data circuits, which they replace by letting customers set up secure, encrypted connections on a private IP network or the Internet.

According to Cisco, it will use Allegro's VPN acceleration technology to enhance the performance of its own VPN products. Allegro's technology also will let Cisco increase the number of simultaneous VPN connections supported on a VPN device.

Earlier this month, Cisco struck a $150 million deal to buy privately held AuroraNetics Inc., based in San Jose, Calif. AuroraNetics is an integrated circuit vendor specializing in chips used to route traffic in metropolitan area, next-generation IP-based networks using Resilient Packet-Ring technology.

With the two acquisitions, "Cisco is looking at ways to improve its technology moving forward," especially in key technology sectors that the company believes will show the most growth, says Yankee Group analyst Zeus Kerravala.

"This is a very focused buy to enhance Cisco's VPN offering, which Cisco takes very seriously," Kerravala adds. In combination with the AuroraNetics acquisition a couple of weeks ago, the deal also shows that Cisco believes it's on a strong enough financial footing to acquire strategic technologies. That's in contrast to Cisco rivals such as Lucent Technologies, says Kerravala, which is struggling just to survive.