Cisco Invests in Optical Tech With $2.6B Acacia Communications Deal

Cisco is buying Maynard, MA-based Acacia Communications (NASDAQ: ACIA) for $2.6 billion in a deal to boost the networking giant’s stock of optical technologies, the companies announced Tuesday.

The deal values Acacia at $70 per share, a 46 percent premium to its closing stock price Monday, but still a bargain compared with Acacia’s peak share price of $100-plus in 2016, the year it went public. The acquisition is expected to close in the second half of Cisco’s 2020 fiscal year.

San Jose, CA-based Cisco (NASDAQ: CSCO) sees in Acacia a way to expand the range of optical networking options it has to compete on performance, capacity, and cost. Acacia is an existing supplier of optical networking hardware for Cisco.

“With the explosion of bandwidth in the multi-cloud era, optical interconnect technologies are becoming increasingly strategic,” David Goeckeler, head of Cisco’s networking and security business, says in a press release. “The acquisition of Acacia will allow us to build on the strength of our switching, routing, and optical networking portfolio to address our customers’ most demanding requirements.”

Founded in 2009 by a trio of engineers that hailed from Bell Labs, Mintera, and Sycamore Networks, Acacia launched itself into merging the benefits of silicon chips with photonics within networking equipment. Along the way, Acacia raised more than $32 million from investors including Matrix Partners, Commonwealth Capital Ventures, and Summit Partners. Acacia went public in 2016—back when the window for tech IPOs was open just a crack—raising another $103.5 million.

Acacia has about 400 employees today, and it has finished the past three years in the black, though its profits of $131 million in 2016 did see a big slide to $38 million in 2017 and $5 million last year.

Cisco’s head of optical systems and optics business, Bill Gartner, said in a conference call Tuesday about the deal that the market for optical networking is a multi-billion-dollar opportunity that’s being driven by an “exponential growth in internet users, video content delivery, social networks, and significant demand for high-speed networks that are open, programmable, and automated.”

Cisco—valued at $240 billion—has made a number of investments in optical technologies over the past decade. It bought semiconductor company Luxtera last December for $660 million, optical interconnect company Lightwire for $271 million in 2012, and CoreOptics for $99 million in 2010.

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