In 2012, Cisco made one of its biggest-ever acquisitions — and a major step into the Israeli tech world — when it acquired video and security specialist NDS for $5 billion. Now, the company is selling part of that business to one of its previous owners, the private equity firm Permira, as it looks to refocus itself and boost growth in networking, multi-cloud, security, data, and collaboration services.

Permira says it is acquiring selected video technology assets, along with other cloud technology services, which it plans to launch as a new, standalone business.

The new, rebranded company will be “focused on developing and delivering video solutions for the Pay-TV industry,” and it will unveil its new name and more details after the transaction is closed. The board of Cisco has already approved the deal, and it is expected to close in Q1 of the 2019 fiscal year.

Abe Peled, the former chairman and CEO of NDS and a Permira advisor, will be leading the new company (the CEO as yet is unnamed). He said in a statement that the business had been profitable under Cisco.

“We are proud of our innovation in video and the customer momentum that the Service Provider Video group has built,” said Chuck Robbins, Chairman and CEO, Cisco, in a statement.

“With the leadership team and Abe as Chairman, the new company is well-positioned to drive this work forward and continue to deliver the solutions that meet the current and future needs of service provider video customers. Service providers remain a key customer segment for Cisco, and we look forward to continuing to partner with them to deliver new revenue-generating services and experiences.”

More from Cisco on the divestment here, and there may be yet more detail when the company reports its quarterly earnings in two weeks.

Terms of the deal are not being disclosed. There are reports in the Israeli press of a $1 billion price tag, but I’ve been told by a source that this is “way off.” I’ll add more detail as and when I get it. There have been reports swirling since November 2017 that Cisco was looking to divest its Videoscape business and that Permira would be the buyer.

From what we understand, the assets represent a significant chunk of Cisco’s service provider video business. The include the following:

Among the assets that were part of the original NDS business, Permira is buying Cisco’s video security services, including smartcards and software solutions associated with conditional access security; video middleware, or software solutions that provide advanced user experiences on any underlying set-top box hardware; and software for video services.

Among the assets that were a part of Cisco’s Infinite Video Platform (IVP), Permira is acquiring Cisco’s cloud video recording solutions for managing, storing, and playing recordings; cloud platform solutions for video consumption on any device on any network; and video processing solutions covering encryption, management and distribution of live and on-demand content.

Permira is not acquiring video and media technology that Cisco is using related to its existing networking, multi-cloud, security, data and collaboration services. In other words, WebEx and things like that are not a part of this deal.

The divestment is key development for Cisco.

Across much of 2017, the company reported little growth in its major segments and has more generally been facing a lot of pricing pressure around its hardware and networking businesses. “Other products”, meanwhile, have seen their revenues shrinking (see here and here).

In that context, the NDS business and related solutions may have been seen by some as legacy assets that needed to be cut away so that Cisco could focus more on trying to grow other parts of its business. Those that were called out in a blog post by Yvette Kanouff, SVP of Cisco’s service provider business, include mass-scale networking, automation, optical, optics, cable access, and mobility, security, collaboration, IoT, and professional services.

Created to serve Pay-TV companies as they existed in the late 80s-2000s — it was originally founded in 1988 — NDS at one point was even co-owned by one of them, News Corp, which had a 49 percent stake in NDS, with Permira holding 51 percent, when it was sold to Cisco for $5 billion in 2012. (For some extra context, News Corp and Permira originally paid $3.7 billion for NDS when they took it private in 2009.)

Times have moved on, though. The development of cloud-based video and streaming have led to a different class of set-top boxes. And more importantly, a growing number of consumers now choose to bypass traditional PayTV providers altogether, either opting for something like an Apple TV or Amazon Fire TV solution, or going the direct to Internet route and using YouTube and other services. That also means a lot of pricing pressure for those who are still working with these providers.

The theory behind divesting the Cisco assets and rebuilding them is that many of these Pay-TV providers are still very much in business and want to stay that way, so there is an opportunity to both service them as is, but also come up with new products and services to help bring them into the 21st century.

“This is a unique opportunity to lead and shape the video industry during its transition with the flexibility as a private company,” said Dr. Peled in a statement. “The new company will have the scale, technology innovation, and world-class team to deliver outstanding go-to-market execution, customer engagement, and new end-user experiences.  Cisco has built a profitable business in the video space with innovations to capitalize on IP distribution and cloud-based services. These combined assets provide a significant new opportunity for the new company. I am thrilled to be working again in this area with Permira who is committed to innovation and support for our Pay-TV customers, and look forward to the ongoing working relationship with Cisco in support of our mutual customers.”

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