Cisco Systems Inc. has kicked off the week by announcing plans today to acquire BroadSoft Inc., a Gaithersburg, Maryland-based provider of business communications services, for a hefty $1.9 billion in cash.

The price tag amounts to about $1.7 billion net of debt. BroadSoft shareholders stand to receive $55 per share as part of the deal, which represents a mere 2 percent premium over the company’s Friday closing price. However, Bloomberg noted that the offer values the communications provider 28 percent higher than its stock price before rumors of the acquisition first emerged in August.

The deal is set to buy the world’s largest maker of network switches and routers for moving data over the internet and large corporate networks an extensive portfolio of cloud services. BroadSoft provides hosted applications that enable workers to communicate via voice, video and chat as well as collaborate with features such as screen scanning. The company also offers a suite of tools aimed at helping organizations run their contact centers more efficiently.

Even more notable than the scope of BroadSoft’s product lineup, however, is the underlying business model. The company delivers its services through partnerships with about 450 telecommunications providers around the world, including Verizon Communications Inc. and AT&T Inc. These alliances have enabled BroadSoft to rack up an installed base of some 19 million small business subscribers.

The acquisition is poised to extend Cisco’s reach in the communications market considerably. So far, networking giant has mostly limited its efforts to on-premises and enterprise solutions.

The purchase of BroadSoft is part of a broader push by Cisco to generate more recurring revenue with the help of subscription-based offerings such as cloud services. It’s one of the main priorities that Chief Executive Officer Chuck Robbins has been pushing since he took over the helm in 2015. The initiative is largely a response to the stagnant growth of the company’s core data center hardware business, which is facing mounting competition.

In August, Cisco suffered a seventh straight quarterly decline in revenue as it continued a slow move toward becoming more of a software company. In that quarter, however, Cisco did report more progress on its transition from hardware sales to subscription revenues. Mostly subscription-driven deferred revenue rose 23 percent from a year ago, making up 12 percent of total revenue. At the time, Robbins conceded the company is working on a “multiyear” transition. “While I’m happy with our progress, it’s clear we have more to do,” he said.

That clearly includes more acquisitions. BroadSoft is the latest in several recent deals that Cisco has made in an effort to rekindle growth. The company announced its previous purchase only last week: a startup called Perspica Inc. specializing in application monitoring. Cisco is counting on the acquisition to boost its AppDynamics business, which was itself brought onboard through a $3.7 billion buyout earlier this year.

“The deal opens up more options for Cisco in their selling motion with service providers,” said Eric Hanselman, chief analyst at 451 Research. “It also offers momentum in the movement to cloud-based services. They’ll need to continue with this progress, if they’re going to really turn the corner on software sales across the board.”

The BroadSoft deal is set to close in the first quarter of 2018.

With reporting from Robert Hof

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