Why Cisco is Paying a High Price to Acquire a Cloud Networking Startup

Cisco Systems’ acquisition of Isovalent, a cloud networking and security startup backed by Google and Microsoft, announced on Thursday, suggests that the enterprise software stock rebound is also boosting startup valuations in the sector.

Cisco, a pioneer in data center networking equipment that has shifted to serve cloud customers, is paying around $650 million in cash for the startup, or 32 times its annual recurring revenue, said a person with direct knowledge of the figure. That’s well above the average valuation multiple for enterprise software stocks outside artificial intelligence, which are trading at 8.2 times ARR, according to Meritech Capital.