Cisco Deal Causes a Ruckus for RKUS

Wi-Fi player Meraki now has CSCO's power behind it

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

Last Friday, Ruckus Wireless (NYSE:RKUS) pulled off a disastrous IPO that saw the stock fall off 18%.

And despite what Monday’s early gains (+4%) might indicate, today isn’t looking much better.

Cisco (NASDAQ:CSCO) just announced a $1.2 billion deal for Meraki, which plays in the same market as Ruckus — they develop gear that allows companies to set-up sophisticated Wi-Fi networks.

The market itself has seen breakneck growth. According to Infonetics Research, industry sales are forecast to rocket from just $296 million in 2011 to $2.8 billion in 2016 — or a 57% compound annual growth rate! As for Ruckus, the company’s own revenues have nearly doubled to $152.5 million for the first nine months of 2012.

So it would seem like a good thing that Cisco’s acquisition validates the Wi-Fi market. However, it likely will mean more pressure on Ruckus.

Meraki has been on a similar growth ramp as Ruckus. However, by being a part of Cisco — which has a massive distribution footprint and annual revenues of more than $46 billion — Meraki’s market potential could be much greater.

Interestingly enough, Meraki was resistant to selling out and wanted to go public. But it looks like management realized that Cisco ultimately was the best way to conquer the market.

“Cisco’s global reach will enable us to get our products in front of more customers faster than we could as an independent company,” the company said.

Thus, RKUS shareholders are caught in a precarious position.

The market already has other major rivals like Ericsson (NASDAQ:ERIC), Hewlett-Packard (NYSE:HPQ), Motorola Solutions (NYSE:MSI) and Aruba Networks (NASDAQ:ARUN) — having Cisco behind the wheel of another big competitor won’t make anything easier for the RKUS.

However, Cisco’s deal might have just made Ruckus an attractive buyout candidate, itself.

Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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