Under the terms of the deal, the networking giant is to pay approximately $92m in cash for the privately held company, subject to the usual closing conditions. The deal is expected to close by October 31.
Pleasanton, California-based Arroyo was founded in 2002 and has 44 staff spread across California and its development center in Utah. It provides video networking software that allows for the delivery of personalized television, to a wide range of devices including personal video recorders and set-top boxes.
The ability to deliver content is an increasingly attractive market segment, as can be seen by the growing demand among home customers for the ability to download movies, TV, and music. Arroyo’s customer base is made up of operators and service providers including US cable operators Comcast Corp, Time Warner Cable, and Charter.
The entertainment industry is going through a major shift while consumer desire for personalized on-demand service is on the rise, said Michelangelo Volpi, senior VP and general manager of Cisco’s routing and service provider technology group. The industry is quickly evolving from pure video-on-demand to anything-on-demand with any content delivered to any end-device.
According to data tracked by Computer Business Review’s Tech Finance team, Arroyo’s potential was recognized early on by the venture capitalist community, after it received a $13m Series A funding round in April 2004. This was followed by a $12 Series B funding round in March 2005, from the likes of Matrix Partners, Doll Capital Management, Foundation Capital, Time Warner Investments, and Comcast Interactive Capital.
The deal marks Cisco’s latest push into the entertainment market, following its $6.9bn acquisition of set-top box maker Scientific-Atlanta Inc late last year. Until then, there had been concerns that revenues from Cisco’s core routing and switching equipment had been flagging, prompting the networking giant to seek new technology markets to assist revenue growth.
Large value deals like the Scientific-Atlanta acquisition are not the norm for Cisco however, which prefers to acquire or invest in small outfits with niche technologies. This was illustrated by Cisco’s investment in San Mateo, California-based Akimbo Inc in June this year. That start-up delivers video to people’s home televisions via a set-top box.
Video is emerging as the key strategic application in the service provider triple-play bundle of consumer entertainment, communication and online services, said Cisco chief executive John Chambers in November 2005 at the time of the Scientific-Atlanta deal.
San Jose, California-based Cisco said the Arroyo team and product portfolio will be integrated into Ciso’s Cable & Video Initiatives Group, within the Service Provider organizations head up by Volpi.
Cisco is also getting some very experienced Arroyo executives with the deal, in the form of Drew Major, an original founder of Novel, and Paul Sherer, a former CTO at 3Com.
