Cisco Plans to Buy Michigan Unicorn Duo Security for $2.35 Billion

Duo Security is set to be acquired by Cisco in a blockbuster deal worth about $2.35 billion.

The purchase will bring San Jose, CA-based Cisco (NASDAQ: CSCO)—which sells a variety of IT hardware, digital products, and services—a software-as-a-service security tool used to authenticate a user’s access to things like software, networks, and devices. The company was apparently happy to pay up to gain control of Ann Arbor, MI-based Duo, which claimed last year it was valued at about $1.17 billion after a $70 million round of funding. That put Duo in the rare category of so-called “unicorn” businesses valued by their investors at $1 billion or more.

Duo isn’t Cisco’s largest cybersecurity acquisition: it paid approximately $2.7 billion for Sourcefire in 2013. Cisco’s other security deals in recent years include the $635 million purchase of San Francisco-based OpenDNS in 2015 and the $293 million purchase of Waltham, MA-based CloudLock in 2016.

It appears Cisco won’t be changing too much about Duo, at least not right away. Co-founder and CEO Dug Song is going to continue leading the business after the deal closes, and Cisco says Duo will be a unit of the company’s networking and security business. The companies are going to continue operating separately until the deal closes, which isn’t expected until the start of 2019, according to a press release.

Duo—which has offices across the globe, including Detroit; Austin, TX; San Mateo, CA; and the U.K.—sells a cloud-based, two-factor authentication technology that gives a second method of confirming a user’s identity when trying to log into a website or database. Cisco has been working to build out its cloud-based security portfolio, David Goeckeler, the general manager of Cisco’s networking and security business, wrote in a blog post.

In a separate post, Song wrote that the deal will give Duo the ability to operate on a global scale. “Cisco views our leadership in zero-trust security as transformational to their business, bringing cloud-based user and device trustworthiness to an already impressive security product portfolio,” Song wrote.

Like other similar software, Duo verifies a user’s identity through a second device, like a smartphone, or through a piece of information only the user has, as Xconomy has previously reported. Duo’s software can also check the health of its customers’ devices, and block access to those deemed risky. Its customers include some of the world’s biggest tech companies, including Facebook, Etsy, Yelp, and Zillow.

The multi-billion-dollar deal is a boon to the Michigan startup scene, which has been seeking to elevate its profile. Duo has raised some $119 million from investors since its founding eight years ago, which helped it achieve the highest private valuation of any startup in the state’s history, according to the Michigan Venture Capital Association. Duo has 12,000 customers and 700 employees.

The $2.35 billion is a mix of cash and “assumed equity awards” for Duo’s outstanding shares, warrants, and equity incentives, Cisco says.

David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at dholley@xconomy.com Follow @xconholley

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